The central government employees have now more options to choose from on the pension front, as the Unified Pension Scheme (UPS) comes into effect from Tuesday (April 1). The scheme was announced in August 2024 to reduce the pension liabilities on the exchequer.
As of March 1, 2025, there were nearly 36.57 lakh central government civilian employees and the number of pensioners stood at 33.91 lakh. The demand on the public funds by the ex-employees, particularly under the Old Pension Scheme (OPS), was about `2.07 lakh crore in FY23. The government pays 50% of the average of the last 10 months' pay as pension in the OPS.
Before we explain how to opt for the new scheme, let’s first explain the difference between the New Pension Scheme (NPS) and the Unified Pension Scheme (UPS). The key difference lies in the pension guarantee and investment approach. While the NPS is market-linked with potentially higher returns but no guaranteed pension, the UPS offers a guaranteed minimum pension, thus providing a stable and predictable income.
The NPS invests a portion of its corpus in market-linked instruments such as equities, corporate bonds, and government securities, but the pension amount is not guaranteed and depends on the accumulated corpus and investment returns. From a taxation point of view, NPS offers tax benefits on contributions and potentially on the pension received and also offers flexibility in choosing investment options and contribution amounts. When it comes to the contribution to the corpus, both the employee as well as the employer contribute to the NPS.
On the other hand, in the UPS, the details of the investment strategy are yet to be disclosed, but it promises a stable and predictable income or a guaranteed pension, including a minimum pension amount, and family pension.
Similarly, on the tax benefits side, too, details are awaited.
Like in the NPS, in the UPS too, both employee as well as the employer, contribute to the corpus. Under the UPS, the employee share is 10% of the basic salary along with DA, and the government contributes 18.5%. While in the NPS, the employee share is 10%, government chips in 14%, which means that your take home is lower by 4.5%.
Another benefit of the UPS is that it allows one to get gratuity, according to the Central civil services rules of 2021. And the maximum gratuity payable is 16.5x the salary or `25 lakh, whichever is less.
In addition to gratuity, UPS subscribers will also receive a lump-sum payment and an assured pension upon retirement.
In nutshell, barring the taxation front on which the scheme is silent, the UPS looks more beneficial to an employee as the pension payout is guaranteed. The new scheme guarantees a pension of 50% of the average basic pay over the last 12 months of service, while NPS offers market-linked returns, potentially higher but with risks.
Who’re eligible?
All central government employees in service as of April 1, 2025, and covered under the NPS are eligible to opt for the UPS, just by shifting their NPS account to the UPS.
One condition for receiving the pension is that a UPS subscriber has to complete 10 years of service to receive the minimum assured monthly pension of `10,000 as the subscriber has the choice of default pattern of pension fund and default investment. The assured return is a lump-sum amount equivalent to one-tenth of the last drawn basic pay plus DA for every completed six-month period of qualifying service.
Even those retired prior to March 31, 2025, but was covered under NPS are also eligible for the UPS. Not just them, even those who received superannuated after minimum 10 years of service or has retired under fundamental rules 56(j) which is not treated as penalty under Central civil services rules of 1965, on or before March 31, 2025, and the legally wedded spouse of the deceased subscriber are also eligible for UPS.
How to Join UPS?
Anybody willing to opt out of the NPS and accept the UPS can do so by directly linking one’s UPS enrollment and claim forms. The enrolment and claim forms are online from April 1, 2025, on the official website of Protean CRA. The application can be submitted online or physically to the head of office/DDO where the subscriber is employed.
For those who joined the service on or after April 1, 2025, can join the UPS by filling up the Form A1 and for others there is Form A2.
On can obtain forms A1 an A2, along with the instructions and list of documents to be attached, can be downloaded from the website of the Protean CRA at npscra.nsdl.co.in/ups.php. The opt in has to be exercised within three months from April 1, or within such extended timelines if any, allowed by the government. But new recruits have to opt in within 30 days from the date of joining government services or within such extended timelines, if any, allowed by the government,
Once you opt in, there is no way to opt out of the UPS as the option to choose UPS is final and irrevocable. So is there a penalty on those staying out in the NPS? No as all eligible persons, who do not exercise the UPS option under NPS within the timelines laid down shall be deemed to have opted to continue under the NPS.