Unified pension system explained: From guaranteed pensions to inflation indexation – 5 important features

In a major step towards improving retirement benefits for employees, the Cabinet led by Prime Minister Narendra Modi on Saturday announced the Unified Pension Scheme (UPS) for central government employees. With the UPS, the government has sought to combine the benefits of the Old Pension Scheme (OPS) with the existing National Pension Scheme (NPS).

The UPS will provide guaranteed pension, family pension and minimum pension to 2.3 million government employees from April 1, 2025. Here are the key benefits of the unified pension scheme approved by the Union Cabinet last night.

Unified pension system: main features

UPS can be considered as an upgrade of the existing NPS for government employees who continue to contribute 10% of their income to the scheme. However, the government's contribution has increased from the current 14% to 18.5%. UPS offers guaranteed pension, inflation indexation and family pension to its subscribers. Here are the key features of the scheme.

Secured pension

UPS subscribers receive a guaranteed pension under the program. They would be entitled to 50% of the average base salary for the last 12 months before retirement. This feature is available to employees with a minimum of 25 years of service. For those with less years of service, up to a minimum of 10 years of service, this payment is prorated.

Secured family pension

The system also offers the advantage of a guaranteed family pension. Under this UPS function, the family members of the insured person receive 60% of the pension immediately after their death.

Guaranteed minimum pension for employees with less than 25 years of service

Employees who retire without completing 25 years of service can also receive a pension under the UPS system. The system provides the guaranteed minimum pension of ₹10,000 per month as an old-age pension after at least ten years of service.

Inflation indexation

The guaranteed pension, family pension and guaranteed minimum pension for UPS subscribers will be adjusted for inflation. As for service employees, there will be a cost-of-living allowance based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), Information and Broadcasting Minister Ashwini Vaishnaw said on Saturday, August 25.

Lump sum payment upon retirement

Under the UPS program, upon retirement, subscribers receive, in addition to the severance payment, one-tenth of the monthly remuneration (salary + DA) at the time of retirement for every six completed months of service. The payment does not affect the amount of the insured pension.