Pension Update: UPS or NPS? Finance Ministry allows one-time switch-in option for govt employees. All you need to know

3 min read | Updated on August 26, 2025, 09:19 IST

SUMMARY

As per the Ministry of Finance notification, the switch facility will not be allowed in case of removal, dismissal or compulsory retirement as a penalty or for cases where disciplinary proceedings are ongoing or contemplated.

Once the switch facility is availed, the provisions of the PFRDA (Exit & Withdrawal under NPS) Regulations, 2015 shall apply. | Image: Shutterstock

The Centre has decided to allow its employees who have selected the Unified Pension Scheme (UPS) a one-time, one-way switch facility to the National Pension System (NPS).

A notification issued by the Ministry of Finance says, It has been decided that a one-time, one-way switch facility from UPS to NPS shall be made available to all Central Government employees who have opted for UPS.

What is the new switch facility?

"This switch facility may be exercised by UPS optees any time not later than one year prior to the date of superannuation or three months prior to the deemed date of retirement in case of voluntary retirement, as applicable. Similar provisions will be made for resignation and cases of Rule 56J, with minor modifications as necessary. If switch facility not exercised as per aforesaid timelines, the employee shall continue under UPS by default," the notification read.

Switch facility will not be allowed in these cases

What happens after switching to NPS?

Once the switch facility is availed, the provisions of the PFRDA (Exit & Withdrawal under NPS) Regulations, 2015 shall apply. The concerned employee shall cease to be eligible for assured payouts and UPS benefits.

The government's differential contribution (4%) at default investment pattern will be worked out and shall be credited to the individual's NPS corpus at the time of exit in case of the switch, the memorandum read.

The changes have been forwarded to all central government ministries and departments to be shared with all eligible employees.

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Unified Pension Scheme (UPS)

The finance ministry notified the implementation of UPS for central government employees covered under NPS on January 24, 2025. The scheme was rolled out nationwide on April 1, 2025.

To encourage more employees seeking a guaranteed pension, the government extended the deadline to opt into the UPS from the original cut-off date of June 30 to September 30, 2025.

Under the UPS, eligible employees are assured a pension equal to 50% of their average basic pay over the last 12 months prior to retirement, provided they have completed a minimum of 25 years of qualifying service. This marks a shift from the NPS, which offers market-linked returns without a guaranteed pension amount.

Why it matters for govt employees?

The one-time switch option from UPS to NPS is a significant development for central government employees because it gives them a chance to re-evaluate their retirement strategy. This matters due to the fundamental differences between the two schemes

UPS: This scheme provides a guaranteed, fixed pension. For employees with at least 25 years of service, the assured payout is 50% of their last 12 months' average basic pay. This offers security, without any market risk.

NPS: NPS is a market-linked scheme. The final pension corpus and the resulting pension amount depend entirely on the performance of the chosen investment funds (equity, corporate bonds, and government securities). This means the potential for higher returns is there, but so is the risk of market fluctuations.