The Pension Fund Regulatory and Development Authority (PFRDA) has notified the Unified Pension Scheme (UPS) on 19th March 2025, which is a significant development for Central Government employees currently covered under the National Pension System (NPS). This post provides a detailed explanation of the UPS, outlining its key features, benefits, and implications for eligible employees. This comprehensive guide will clarify all the essential aspects of UPS.
Understanding the Unified Pension Scheme (UPS)
The Unified Pension Scheme (UPS) has been introduced as a new option for Central Government employees. This scheme aims to provide an assured payout structure, while leveraging the existing framework of the NPS. It will be effective from April 1, 2025.
Eligibility Criteria for UPS
The following individuals are eligible to participate in the UPS:
i) Existing Central Government employees (as of April 1, 2025) already enrolled in NPS.
ii) New Central Government recruits (joining on or after April 1, 2025), who must opt for UPS within 30 days of joining.
iii) Former Central Government employees covered under NPS, who have superannuated, voluntarily retired, or retired under Fundamental Rules 56(j) (not considered a penalty under Central Civil Services (Classification, Control and Appeal) Rules, 1965) before March 31, 2025.
iv) The legally wedded spouse of a deceased subscriber who had superannuated or retired and was eligible for UPS.
Important Note: The decision to enroll in UPS is final and irrevocable. Employees opting for UPS will not be eligible for any future policy concessions, changes, or financial benefits applicable to subsequent retirees.
Enrolment and Account Management
i) Eligible employees (categories 1 and 3 above) must enroll within three months from April 1, 2025.
ii) After authorization, the UPS subscriber will be identified by their existing Permanent Retirement Account Number (PRAN), now tagged to UPS.
iii) UPS subscribers can maintain additional NPS Tier I and Tier II accounts voluntarily under the ‘All Citizen’ model.
Monthly Contributions Under UPS
i) Employee Contribution: 10% of basic pay (including non-practicing allowance, where applicable) and dearness allowance.
ii) Central Government Matching Contribution: An equal amount (10% of basic pay and dearness allowance) will be contributed by the government.
iii) Additional Government Contribution: An additional 8.5% of (basic pay + Dearness Allowance) will be contributed by the Central Government to support assured payouts.
Minimum Guaranteed Payout
The minimum guaranteed payout under UPS is set at Rs. 10,000 per month. This is subject to the completion of a minimum of ten years of qualifying service by the UPS subscriber.
Investment Options and Choices
UPS subscribers are provided with investment flexibility:
i) Default Option: A default pattern of pension funds and investment is available.
ii) Choice of Pension Fund: Subscribers can choose from any PFRDA-registered pension fund.
iii) Investment Choices (if not choosing the default pattern):
a) 100% investment in Government securities (Scheme G).
b) Conservative Life Cycle Fund (maximum equity exposure: 25%).
c) Moderate Life Cycle Fund (maximum equity exposure: 50%).
iv) Flexibility: Subscribers can change their pension fund choice once a year and investment choice twice a year.
Potential Reduction in Final Payout
It’s important to be aware of the potential for a reduced payout:
i) UPS is a contributory fund.
ii) If there’s a shortfall in the individual corpus compared to the benchmark corpus, the subscriber can replenish it before or at retirement.
iii) If the shortfall isn’t replenished, the payout will be proportionately reduced.
Withdrawal of Funds from UPS Corpus
i) Subscribers, or their spouses, can withdraw up to 60% of the lower of the individual corpus or benchmark corpus at retirement.
ii) If the individual corpus is higher than the benchmark corpus at the time of superannuation or voluntary retirement, the final withdrawal amount will be calculated on the basis of the benchmark corpus, and the excess amount will be credited to the bank account of the subscriber.
Partial Withdrawals
i) Partial withdrawals (up to 25% of employee contributions) are permitted after a three-year lock-in period.
ii) A maximum of three withdrawals are allowed.
iii) Withdrawals are typically permitted for specific purposes, such as purchasing or constructing a residential property.
iv) No partial withdrawal can be made if the subscriber is already the owner of a residential house or flat, other than ancestral property.
Assured Payout Calculation
i) Full Assured Payout: 50% of the 12-month average basic pay immediately before superannuation.
ii) Qualifying Service: A minimum of 25 years of qualifying service is required for a full payout.
iii) Proportionate Payout: A proportionate payout is admissible for a lesser qualifying service period.
iv) Minimum Guarantee: A minimum of Rs. 10,000 per month is assured after 10 years or more of qualifying service, provided contributions are timely and regular, and no withdrawals are made.
Eligibility for Assured Payout
Assured payouts start from the date of superannuation, or from the date the employee would have superannuated in case of voluntary retirement. Central Government employees under NPS who opt for UPS are eligible for assured payouts, under these circumstances:
i) On superannuation after completing 10 years of minimum qualifying service.
ii) On retirement under FR 56(j), not considered a penalty.
iii) In case of voluntary retirement after 25 years of qualifying service, from the date they would have retired had they continued in service.
Non Eligibility for Assured Payouts under UPS
Assured Payouts are not given if:
i) An employee retires before completing 10 years of service.
ii) An employee is removed or dismissed from service.
iii) An employee resigns from service.
Family Payout
i) Upon the death of the payout holder after superannuation, the legally wedded spouse will receive a family payout.
ii) The family payout is 60% of the payout admissible to the payout holder immediately before their demise.
Industry Perspective
Experts view UPS as a beneficial scheme for government employees, offering greater investment choices through private pension fund managers (PFMs). However, annuity service providers are excluded from the UPS ecosystem. Currently, UPS applies only to Central Government employees; state governments must decide independently on its implementation.
Conclusion
The Unified Pension Scheme (UPS) represents a significant change in the pension landscape for Central Government employees. It provides a structured approach to retirement savings, combining employee and government contributions with investment flexibility and an assured payout component. Understanding the details of UPS is crucial for eligible employees to make informed decisions about their retirement planning.
PFRDA Notification dated 19/03/2025: Unified Pension Scheme (UPS) under NPS Regulations 2025
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