The Central Government has introduced a new pension plan for its employees, known as the Unified Pension Scheme (UPS). This comes as an alternative to the National Pension System (NPS). While the NPS has already in use for years, the UPS brings a mix of fixed pension benefits, family support, partial withdrawals, and most importantly, inflation protection through Dearness Relief (DR).
Employees under the central government now have to decide whether they want to continue with NPS or shift to UPS. This choice must be made before the end of June 2025. The government implemented the UPS scheme officially from 1 April 2025.
What is the Unified Pension Scheme (UPS)?
The UPS is designed mainly for central government employees who are already under NPS. This new scheme guarantees a fixed monthly pension after retirement. It follows a structure similar to the old pension scheme that many employees had asked to bring back.
Under UPS, employees contribute a portion of their salary, and the government makes a larger contribution to support the system. The key difference from NPS is that UPS adds features like inflation relief, family pension, minimum assured pension, and easy joining options.
Why is Dearness Relief (DR) a Big Deal?
The most attractive feature of the UPS is Dearness Relief (DR). It works like Dearness Allowance (DA) given to serving employees, but DR is given to retired employees as well.
This means, after retirement, the pension amount will not stay fixed — it will be revised every six months based on inflation. The revision will depend on the AICPI-IW index, the same one used for updating DA.
This feature makes UPS more secure against rising prices. In contrast, NPS does not offer any such automatic adjustment for inflation.
Partial Withdrawal Made Easy
Under the new UPS, partial withdrawals are also allowed while an employee is still in service. An employee can take out up to 25% of their own contribution (excluding interest) after completing three years of service.
You can withdraw for:
- Child’s higher education
- Marriage
- House construction or purchase
- Serious illness
- Disability-related expenses
- Skill development courses
This gives flexibility without disturbing retirement savings completely.
Easy Application Process – Online & Offline
To make the process simpler, the government has provided online application options through the CRA (Central Recordkeeping Agency) website. Employees can also apply through the DDO (Drawing & Disbursing Officer) in their office if they prefer an offline mode.
This move ensures no delays, long queues, or confusion about enrollment.
Who Can Join UPS?
The UPS is not open for everyone. The following categories of central government employees are eligible:
1. Existing Employees
Those who are already under NPS till 1 April 2025 can switch to UPS by giving their choice by 30 June 2025.
2. New Recruits
Any new employee who joins central government services after 1 April 2025 must choose to opt into UPS within 30 days of their joining.
3. Retired Employees
Employees who retired before 31 March 2025 and completed at least 10 years of service can also opt for UPS. They will receive arrears with PPF-level interest.
How Much Do You and the Government Pay?
The structure of contributions under UPS is:
- Employee Contribution: 10% of Basic Pay + DA
- Government Contribution: 18.5% of Basic Pay + DA
Out of the 18.5%, about 8.5% will be kept aside in a special fund to support the long-term stability of the scheme. This is more generous than the 14% government contribution under NPS.
Benefits Under the Unified Pension Scheme
UPS brings multiple benefits for employees and their families. Here’s what employees can expect:
1. Full Pension
If an employee completes 25 years or more in service, they will receive 50% of their average basic pay (of the last 12 months) as a monthly pension.
2. Minimum Pension
If an employee completes at least 10 years of service, they are guaranteed a minimum monthly pension of ₹10,000.
3. Pro-Rata Pension
For employees who serve between 10 and 25 years, the pension will be calculated based on years of service.
4. Family Pension
After the employee’s death, the family will receive 60% of the employee’s pension amount as a monthly family pension.
Retirement Lump Sum and Arrears
Under UPS, employees also get a gratuity-like benefit:
- For every six months of service, employees receive 1/10 of their last basic salary + DA at retirement.
Also, retired employees who opt for UPS will get arrears with interest, calculated at PPF rates.
Investment Choices
Even though UPS provides a fixed pension, employees still have the choice to decide how their funds are invested. UPS allows you to:
- Choose from PFRDA-registered pension funds
- Pick from government security options or
- Go for lifecycle-based funds with limited equity exposure
This ensures that even within a fixed pension structure, employees can have some control over how their money is managed.
Who is Not Eligible for UPS?
Some employees cannot benefit from this scheme:
- Those with less than 10 years of service
- Those who resign voluntarily or whose service ends early
- Currently, state government employees are not included. States may choose to implement UPS separately.
UPS vs NPS: Key Differences at a Glance
| Feature | UPS |
| Minimum Service Period | 10 years (₹10,000 minimum pension) |
| Full Pension | 50% of avg. last 12 months’ basic salary (25+ yrs) |
| Inflation Protection | Yes, through Dearness Relief (DR) |
| Family Pension | Yes, 60% of employee’s pension after death |
| Partial Withdrawal | Yes, up to 25% after 3 years |
| Government Contribution | 18.5% (vs 14% in NPS) |
| Gratuity/Lump Sum | 1/10 of basic + DA for every 6 months of service |
| Arrears | With PPF-level interest for eligible retired workers |
Why Many Prefer UPS Over NPS?
UPS looks attractive, especially for those who prefer a stable monthly income after retirement. The guaranteed pension, inflation relief, and family support features bring a sense of security, which is often missing in NPS due to market-linked returns.
While NPS may give higher returns over the long term, it involves risk. Many employees now prefer UPS for its predictable pension, even if it means slightly lower financial gains.
Disclaimer: This article is for general informational purposes only. Please consult official documents or financial advisors before making any final decision on pension scheme selection.
Sources: Financial Express, CRA, PFRDA, Ministry of Finance
