Why in news?

Central government employees have until September 30 to opt for the Unified Pension Scheme (UPS) under NPS (National Pension System), introduced in April 2025. Despite 23.94 lakh employees being eligible, only around 40,000 have opted so far.

To regulate service matters for those choosing UPS, the Department of Pension and Pensioners’ Welfare notified the Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, on September 2.

What’s in Today’s Article?

• Govt Extends UPS Option to New Employees
• About Unified Pension Scheme (UPS)
• Key Differences Between UPS and NPS
• Why the Unified Pension Scheme Is Slow to Take Off

Govt Extends UPS Option to New Employees

• The government has allowed central employees who joined between April 1 and August 31, 2025, under NPS to migrate to the Unified Pension Scheme (UPS).
• This one-time option, available until September 30, 2025, aligns with the existing cut-off for other eligible categories.
• Employees opting for UPS will also retain the right to later switch back to NPS, ensuring flexibility in planning post-retirement financial security.
• Switch Option from UPS to NPS
  • UPS subscribers have a one-time option to switch to NPS, but cannot return to UPS.
  • The switch must be exercised at least one year before retirement or three months before VRS, and is barred in cases of dismissal, removal, compulsory retirement, or pending disciplinary proceedings.
  • Those not opting will remain under UPS.
  • Employees switching to NPS will receive its benefits along with the differential 4% contribution, giving greater flexibility and informed choice for retirement planning.

Unified Pension Scheme (UPS)

• Before UPS, central government employees hired before January 1, 2004, were covered under the Old Pension Scheme (OPS), which guaranteed fixed pensions, while those joining after were under the market-linked National Pension System (NPS).
• Amid persistent demands to restore OPS, the Union Cabinet approved the Unified Pension Scheme (UPS) in August 2024 as an optional scheme.
• About UPS
  • From April 1, 2025, the government introduced the UPS as an option under NPS for central government employees hired after January 1, 2004.
    • Around 23 lakh employees can choose between NPS and UPS.
  • Unlike NPS, UPS guarantees an assured pension: 50% of the average basic pay of the last 12 months before retirement, provided the employee has served a minimum of 25 years.
  • In case of the pensioner’s death, the spouse will receive up to 60% of the pension being drawn.
  • Unlike the Old Pension Scheme, which guaranteed 50% of last drawn basic pay without employee contribution, UPS combines assured benefits with mandatory contributions.

Key Differences Between UPS and NPS

• The NPS is mandatory, while the UPS is optional, with employees given a one-time chance to switch back to NPS before retirement or VRS.
• Under the NPS, through the Permanent Retirement Account Number (PRAN), employees contribute 10% and the employer 14% of basic pay plus dearness allowance (DA), with pension benefits entirely dependent on the accumulated corpus.
• In contrast, the UPS requires 10% contributions each from employee and employer, with an additional 8.5% contribution by the government to create a pool corpus.
• This pool funds an assured pension of 50% of the employee’s average basic pay over the last 12 months, provided a minimum of 25 years of service is completed.
• Unlike NPS, UPS guarantees a minimum monthly payout of ₹10,000 after 10 years of service, ensuring greater financial security.
• UPS also offers a lump sum equal to one-tenth of the last basic pay plus DA for every six months of service, whereas NPS has no such provision.
• Employees dismissed from service are ineligible for the assured UPS payout.

Why the Unified Pension Scheme Is Slow to Take Off?

• Although the government extended the deadline to September 30 for employees to opt into the Unified Pension Scheme (UPS), uptake remains low.
• The Department of Pension is holding awareness drives, but many employees still prefer the Old Pension Scheme (OPS), which required no employee contribution and guaranteed 50% of the last drawn basic pay plus DA as pension.
• In contrast, UPS involves contributions and is seen as less beneficial.
• The Central Secretariat Service Forum has also criticised both NPS and UPS, reiterating its demand for a complete return to OPS.