Union Cabinet approves Unified Pension Scheme for government employees

Union minister Ashwini Vaishnaw

The Union Cabinet, led by Prime Minister Narendra Modi, has given the green light to the Unified Pension Scheme (UPS) for government employees, a significant move that promises an assured pension for the country’s central government workforce. The scheme is set to benefit 23 lakh central government employees and could extend its reach to 90 lakh employees if state governments choose to adopt the same framework.

The UPS, which will be implemented starting April 1, 2025, introduces a range of new benefits, including an assured pension equivalent to 50 percent of the average basic pay drawn over the last 12 months prior to retirement. To qualify for this, employees must have a minimum of 25 years of service. For those with shorter service periods, the pension amount will be proportionate, provided they have served for at least 10 years.

One of the key highlights of the scheme is the assured minimum pension of Rs 10,000 per month for those retiring after at least 10 years of service. Additionally, the assured family pension provision ensures that the surviving spouse or family members will receive 60 percent of the employee’s pension immediately before their demise.

In a major step towards providing financial security to our government employees post-retirement, the Cabinet approved the scheme that not only guarantees a pension but also ensures has inflation indexation.

"The benefits of inflation indexation are built into the scheme, with dearness relief linked to the All India Consumer Price Index for Industrial Workers (AICPI-IW), aligning it with the provisions for serving employees," the government said in a presentation post the Cabinet decision.

Retirees will also receive a lumpsum payment at superannuation, alongside gratuity. This lumpsum will be calculated as one-tenth of the monthly emoluments—comprising pay and dearness allowance—at the time of retirement for every six months of completed service. Notably, this payment does not reduce the quantum of the assured pension.

In a notable provision, the scheme is applicable to past retirees under the National Pension System (NPS) who have already retired. These retirees will receive arrears for the past period with interest calculated at the Public Provident Fund (PPF) rates.

The UPS is designed to offer flexibility, allowing existing and future employees to opt between the NPS and the new scheme. However, once a choice is made, it will be final. Importantly, there will be no increase in the employee contribution under the new scheme. Instead, the government will increase its contribution from 14 percent to 18.5 percent to support the implementation of the UPS.

The central government’s initiative lays the groundwork for state governments to adopt a similar architecture, potentially extending the benefits of the UPS to a vast number of state government employees currently under the NPS, it stated.

"We are proud of the hard work of all government employees who contribute significantly to national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future," Modi said in a post on X.

"This is a positive step to bring harmony between old and new schemes. The guarantee is the important part of the scheme," Madan Sabnavis, chief economist, Bank of Baroda, said.