The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the Unified Pension Scheme (UPS) for government employees, marking a significant step toward ensuring an assured pension for central government workers. This scheme is expected to benefit 23 lakh central government employees and could potentially cover up to 90 lakh employees if state governments adopt the same model.
Set to take effect on April 1, 2025, the UPS introduces various benefits, including a guaranteed pension amounting to 50 per cent of the average basic pay earned during the last 12 months before retirement. To be eligible, employees must complete a minimum of 25 years of service. For those with shorter service periods, a proportional pension will be provided, as long as they have served for at least 10 years.
A key feature of the scheme is the guaranteed minimum pension of ₹10,000 per month for employees who retire after serving at least 10 years. Additionally, the scheme includes a family pension provision that ensures surviving spouses or family members receive 60% of the employee’s pension immediately upon their passing.
In a significant move to enhance financial security for government employees after retirement, the Cabinet has approved a scheme that not only guarantees a pension but also incorporates inflation indexation.
“The scheme includes inflation indexation benefits, with dearness relief tied to the All India Consumer Price Index for Industrial Workers (AICPI-IW), aligning it with the provisions for current employees,” the government stated in a presentation following the Cabinet decision.
Retirees will also receive a lump sum payment upon retirement, in addition to gratuity. This lump sum will be calculated as one-tenth of their monthly earnings—comprising salary and dearness allowance—at the time of retirement for every six months of service completed. Importantly, this payment will not affect the amount of the assured pension.
In a noteworthy provision, the scheme applies to past retirees under the National Pension System (NPS) who have already retired. These retirees will receive arrears for the previous period, with interest calculated at Public Provident Fund (PPF) rates.
The UPS offers flexibility by allowing current and future employees to choose between the NPS and the new scheme. However, once a choice is made, it is final. Notably, there will be no increase in the employee contribution under the new scheme. Instead, the government will raise its contribution from 14 per cent to 18.5 per cent to facilitate the implementation of the UPS.
The central government’s initiative sets the stage for state governments to adopt a similar framework, potentially extending UPS benefits to a large number of state government employees currently under the NPS, the statement added.
“We are proud of the dedication of all government employees who play a crucial role in national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, reflecting our commitment to their well-being and a secure future,” Modi said in a post on X.
