Central Government Unveils Unified Pension Scheme to Enhance Employee Benefits

New Scheme Set to Benefit 23 Lakh Central Government Employees Starting April 2025

August 25, 2024 In a landmark move aimed at improving employee welfare and addressing electoral challenges, Prime Minister Narendra Modi has announced the introduction of the Unified Pension Scheme (UPS). This new scheme will be implemented alongside the existing New Pension Scheme (NPS) and is set to take effect from April 1, 2025. It will directly benefit 23 lakh central government employees.

Details of the Unified Pension Scheme

The UPS will grant a pension amounting to 50 percent of the average basic salary from the last 12 months of service for employees who have worked for 25 years. For those with 10 to 25 years of service, the pension will be calculated proportionally. The scheme includes provisions for assured pensions, family pensions, a guaranteed minimum pension, inflation-linked adjustments, and additional retirement benefits.

Contribution and Government Support

Under the UPS, employees will be required to contribute 10 percent of their salary, similar to the NPS. However, there will be no additional contribution required beyond this. The central government’s contribution to the pension fund will increase from the current 14 percent to 18.5 percent and will rise further due to inflation, potentially adding an additional burden of Rs 6,250 crore in the 2025-26 fiscal year.

Political and Electoral Implications

The introduction of the UPS is viewed as a significant political strategy ahead of elections in Haryana, Jammu and Kashmir, Maharashtra, and Jharkhand. The scheme is projected to be more financially advantageous for over 99 percent of current central employees compared to the NPS. Retired government employees will have the option to switch to the UPS and receive additional amounts and interest from the central government.

Potential State-Level Adoption

The UPS may also be adopted by state governments, which could benefit up to 90 lakh state employees. This potential adoption puts pressure on opposition parties to address the scheme in their state-level platforms and manifestos.

Additional Benefits

The UPS guarantees a minimum pension of Rs 10,000, with the potential to increase to Rs 15,000 based on current salary levels. Upon the death of a retiree, their family will receive 60 percent of the pension amount as a family pension. Pensions will be adjusted according to the inflation index and dearness allowance, ensuring that the pension amount keeps pace with living costs. Additionally, employees will receive a lump sum equivalent to 10 percent of their basic salary for every six months of service, plus gratuity, amounting to six months’ salary for 30 years of service.

The UPS marks a major reform in pension policy, aimed at providing greater financial stability and security to government employees while addressing recent political concerns.