UPS: Why are government employees not liking the Unified Pension Scheme?

The central government has launched the Unified Pension Scheme in place of the old pension scheme and NPS. But it is not getting a good response from the central employees. People are moving away from this scheme, saying that it is getting fewer benefits than the old pension scheme, as a result of which only 1 percent of the total 27 lakh employees have accepted it. Let us understand why employees are not adopting UPS.

UPS was announced in April 2024 in response to the demand from a section of employees and opposition parties to restore the Old Pension Scheme (OPS), which was replaced by the National Pension System (NPS) in 2004. Under UPS, the employee has to contribute 10% and the government 18.5%. It provides a guaranteed pension of 50% of the average basic salary of 12 months before retirement to employees with 25 years or more of service. This pension is completely linked to inflation. Employees with 10 years or more of service are paid a minimum pension of Rs 10,000 per month. On the death of pensioners, 60% of the last drawn pension is given to their family. The government promoted this scheme a lot, but very few people have been able to join it yet.

Why are people not joining?

However, due to dissatisfaction over long service duration in UPS, monthly contribution, limited benefits in case of early retirement, and limited definition for family pension, only about 1% of the 27 lakh central government employees chose UPS. People are avoiding choosing it due to a lack of clarity on the benefits received in case of death during service, taxation, and concern about cost versus benefit before adopting UPS. Because once selected, there is no way out of it. However, recently, the government has given the option of a one-time one-way switch for this, but it has its own limitations.

Government's steps for UPS

In July, the Center extended the income tax benefits available under the market-linked NPS to UPS, including tax-free withdrawal of 60% of the funds on retirement. It also improved the benefits of OPS in the event of death, disability, or dismissal of a government employee. The Center also gave the benefit of retirement gratuity and death gratuity to employees under UPS. It extended the deadline for switching from NPS to UPS from June 30 to September 30. Last week, it introduced a one-time one-way switch facility from UPS to NPS. Employees opting for UPS can use it up to one year before retirement or up to three months before the retirement date in case of voluntary retirement.

Fiscal implications of UPS

UPS is designed to avoid unnecessary cost implications on government finances. The extra expenditure due to the guarantee element is estimated to be just Rs 8,500 crore in FY26, which will increase progressively over time as salary scales are revised and new people join the service.

However, general control over new additions to the number of employees is expected to keep expenses in check. Since, after 2036, people will retire under UPS, and some of them, as well as family pensioners, may die, in such a situation, their pension capital amount will not be returned to the employee's successors. This will help improve government resources for pensions in the future without depending too much on the budget. The basic pension will not be reset after every pay commission decision, as was the case in OPS.

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