UPS implementation from April 1: What Should Employees Do Next?

On April 1, 2025, the Unified Pension Scheme (UPS) will be launched under the National Pension System (NPS), offering central government employees a robust post-retirement financial security plan. With guaranteed pension benefits, government contributions, and investment flexibility, UPS is designed to provide comprehensive financial support to employees after their retirement.

Key Features of Unified Pension Scheme

Guaranteed Pension Based on Service Tenure

The UPS ensures that the pension payout is linked to the number of years an employee has served. Employees with 25 years or more of service will be eligible to receive 50% of their last 12 months’ average basic salary as a pension.

For employees who have served between 10 and 25 years, they will receive a proportionate pension, ensuring that a longer tenure results in a higher pension amount.

Additionally, employees with at least 10 years of qualifying service will be guaranteed a minimum pension of ₹10,000 per month.

Government Contributions and Investment Flexibility

Under the UPS, employees will contribute 10% of their basic salary plus dearness allowance (DA). The government will match this contribution, resulting in a combined investment of 20%. The contributions will be invested in default government-prescribed schemes. However, employees can opt to invest with private pension fund managers (PFMs) for greater flexibility.

An additional 8.5% contribution will be invested into a common pool corpus, managed by selected fund managers based on their performance.

Inflation Protection with DA Adjustments

One of the key benefits of the UPS is its link to DA, ensuring that pension payouts will increase over time, thereby helping retirees keep up with inflation. Unlike traditional pension plans where fixed payouts diminish over time, the UPS ensures that retirees’ purchasing power remains protected.

Financial Security for Spouses and Survivors

The UPS provides ongoing financial support for the spouse of the pensioner. In the event of the retiree’s death, the spouse will receive 60% of the pension amount, offering continued financial security for loved ones.

How Will Pension Withdrawals Work?

Once an employee retires, the pension will be drawn from their accumulated corpus, similar to a systematic withdrawal plan (SWP) used in mutual funds. This allows retirees to receive regular payouts while their remaining funds continue to grow. If the accumulated corpus is depleted before the retiree or their spouse passes away, the government-managed common pool will continue to provide pension payments.

Currently, the UPS is available only to central government employees. State governments will need to decide individually whether to implement the scheme for their employees. Many states are expected to evaluate the benefits of the UPS before making a decision.

While UPS offers several benefits, there are a few challenges to note. Annuity service providers (ASPs) will not be part of the new system, which could affect their role in pension fund management. Additionally, the investment strategy for the additional 8.5% common pool fund has not yet been finalized, and further details are expected to be provided by the government in the coming months.

Next Step for Employees

Eligible employees can begin enrolling in the UPS starting April 1, 2025, through the Protean CRA portal (npscra.nsdl.co.in). They also have the option to submit physical forms if preferred.

As UPS is set to provide a more structured and secure pension system for central government employees, employees need to understand the details of the scheme and take the necessary steps to enroll when the time comes.

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