Will Unified Pension Scheme (UPS) resolve problems seen in National Pension System (NPS)? Govt replies

The Unified Pension Scheme (UPS) is a defined contribution-based scheme with elements of defined benefit that addresses the concerns regarding assured payout after retirement, Pankaj Chaudhary, Union Minister of State for Finance, said in written reply to a query in the Parliament on Monday (March 24, 2025).

Chaudhary was replying to a query on whether the government has identified problems with the National Pension System (NPS) and whether the UPS will resolve them.

The minister further highlighted that NPS is a defined contribution-based scheme with market-linked returns for post-retirement benefits.

While there is no assured pension in NPS, UPS will provide an assured pension on retirement and it has been created based on recommendations of the NPS review committee.

"An NPS review committee was constituted to suggest measures as are appropriate to modify the NPS with a view of improving upon the pensionary benefits of Government employees covered under NPS, keeping in view the fiscal implications and impact on overall budgetary space, so that fiscal prudence is maintained to protect the common citizens," Chaudhary said.

UPS implementation timeline

UPS was first notified by the Government on January 24, 2025 as an option under NPS. The scheme is set to be implemented from April 1, 2025.

It aims to provide an assured monthly payout after retirement to the Central Government employees covered under the NPS.

"The UPS has been envisaged to address the demand of the employees covered under National Pension System (NPS) regarding assured pension after retirement while ensuring fiscally responsible funded and contributory pension scheme," the minister said.

How will UPS work?

UPS will rely on the regular and timely accumulation and investment of applicable contributions (from both the employees and the employer) for assured payout to the employees.

The monthly contribution of the UPS subscriber will be 10% of basic pay and dearness allowance. The Central Government will also credit an equal amount to the individual PRAN of the UPS subscriber.

Additionally, the minister said, the Central Government will also make an additional contribution of around 8.5% of basic pay plus dearness allowance of all employees who opt the UPS, to the pool corpus on an aggregate basis.

The additional contribution from the Government will support assured payouts under UPS and ensure the long-term financial viability of the scheme, Chaudhary said.

Investment options under UPS

Central Government subscribers can choose any of the pension funds registered with PFRDA and exercise investment options from any of the following investment options

• 100% investments in Government securities;
• Conservative Life Cycle fund with maximum equity exposure capped to 25%;
• Moderate Life Cycle fund with maximum equity exposure capped to 50%;
• Default scheme.

Under UPS, however, the employee can exercise investment choices for the individual corpus alone.

"Such investment choices shall be regulated by the Pension Fund Regulatory and Development Authority. If an employee does not exercise an investment choice on individual corpus, the ‘default pattern’ of investment will apply. The investment decisions for the pool corpus built through the additional Central Government contribution solely rests with Central Government," the minister said.