In a gazette notification yesterday, the Pension Fund Regulatory and Development Authority (PFRDA) introduced extensive regulations for operationalizing the much-awaited UPS, or Unified Pension Scheme. The scheme, effective starting April 1, 2025, will be introduced as an option for all central government employees who are presently covered under NPS, or the National Pension Scheme. Here is a detailed explainer answering all your doubts about the UPS under NPS
Who are eligible to participate in this scheme? As per the notification, the following central government employees are eligible to participate in UPS
A current central government employee, i.e. one in service as of April 1, 2025, who is already covered under NPS New recruits in central government services, on or after April 1, 2025. They are required to opt for the same within 30 days of joining. A Central Government employee who was covered under NPS and who has superannuated or voluntarily retired or has retired under Fundamental Rules 56(j) (which is not treated as penalty under Central Civil Services (Classification, Control and Appeal) Rules, 1965), on or before 31st March 2025 The legally wedded spouse in case of a subscriber who has superannuated or retired and has died before exercising the option for UPS. No option to go back, chance to avail another benefits
For employees falling under categories 1 and 3, the decision to enroll in UPS needs to be made within three months from 1st April 2025. Notably, once the decision to opt for UPS has been made, it will be “final and irrevocable.”
According to the notification dated January 2025, “For the sake of clarity, it is made clear that any employee who has exercised the Unified Pension Scheme option under the National Pension System under this notification, shall not be entitled to and cannot claim any other policy concession, policy change, financial benefit, any parity with subsequent retirees, etc. later, including post-retirement.”
After submitting requisite forms and getting due authorisation from the concerned PAO (Pay and Accounts Officer), the UPS subscriber will be identified by his erstwhile PRAN, tagged to UPS. In addition to their UPS account, these subscribers can have an additional account under NPS (Tier I and Tier II) voluntarily under the ‘All Citizen’ model.
How much will the monthly contribution under UPS be? As noted in the gazette, “the monthly contribution of the UPS subscriber shall be ten percent of the basic pay (including non-practising allowance, where applicable) and dearness allowance thereon, which shall be credited to the individual PRAN of the UPS subscriber.”
This will be matched by the central government, which will credit an equal amount to the individual PRAN of the UPS subscriber.
Further, the Central Government will also provide an additional contribution of an estimated 8.5% of (basic pay + Dearness Allowance) of all employees who have chosen the UPS option. This is for supporting assured payouts under the UPS option.
The minimum guaranteed payout under UPS shall be Rs 10,000/month, subject to completion of a minimum of ten years of qualifying services by a UPS subscriber.
How will my investments be made? As the notification explains, “UPS Subscriber shall have the choice of default pattern of pension fund(s) and default investment.”
A UPS subscriber can also choose from any of the pension funds registered with PFRDA. In case they do not actively make this choice, they will be deemed to have chosen the default pattern. Subscribers shall have an option to change the choice of pension fund once in a financial year and investment choice twice in a financial year.
A UPS subscriber exercising choice of pension fund other than the default pattern, shall choose any one of the following investment choices:
(i) Invest one hundred percent of the funds in Government securities (Scheme G)
(ii) Invest in any one of the following life cycle-based schemes:
(A) Conservative Life Cycle Fund with maximum exposure to equity capped at twenty-five percent.
(B) Moderate Life Cycle Fund with maximum exposure to equity capped at fifty percent.
Says Mr. Rajesh Khandagale, Senior Vice President—NPS, Kfin, “Currently, UPS is applicable only for central government employees, and state governments have to decide on their own for implementation of the same. It is a good scheme and will be beneficial to the government employees. As private PFMs (pension fund managers) will also be part of the investment options, employees will have greater choices for their investments. However, annuity service providers will be adversely impacted as the Government has excluded them from the UPS ecosystem.”
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