A committee led by former Finance Secretary T.V. Somanathan is exploring ways to enhance NPS benefits without reverting to the financially unsustainable Old Pension Scheme (OPS)
Introduction of UPS (Effective April 1, 2025)
- Approved in August 2024
- Covers over 2.3 million central government employees
- Provides a guaranteed pension equal to 50% of the retiree’s average basic pay of the last 12 months
- Minimum qualifying service is 25 years
- Pension begins at age 60, unlike OPS where it started immediately post-retirement
Contribution Structure Under UPS
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- Government’s share increased from 14% to 18.5% of Basic Pay + Dearness Allowance
- Employee’s share remains at 10%
- Annual financial impact is ₹6,250 crore in recurring cost and ₹800 crore in arrears
Investment Strategy for UPS Contributions: To Be Finalised
- Final investment decision expected in 3–4 months
- Key sources for insights include EPFO’s ETF-based equity investment approach (5–15%) and global pension models like Canada Pension Plan (40–50% equity) and Japan GPIF (around 25% equity)
- In the interim, contributions will follow a default investment mix of equities and bonds
- Once a formal strategy is adopted, allocations (e.g., 50% equity) will be adjusted accordingly
Comparative Highlights: UPS vs. NPS and OPS
| Feature | UPS | NPS | OPS |
|---|---|---|---|
| Pension Formula | 50% of avg. last 12 months’ basic pay | Market-linked | 50% of avg. last 10 months’ basic pay |
| Min. Qualifying Service | 25 years | No minimum | 20 years |
| Govt Contribution | 18.5% | 14% | Fully funded (non-contributory) |
| Pension Start Age | 60 years | As per withdrawal | Immediate post-retirement |
| Risk Sharing | Govt + employee | Employee (market-driven) | Fully govt-funded |
| Equity Cap | To be decided | Max 50%, tapering with age | Not applicable |
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Employee Choice Deadline
- Cutoff date is June 30, 2025
- Employees can opt between NPS and UPS
- Once chosen, the decision is final
Broader Pension Reform Efforts
Building a Resilient, Globally Benchmarked Pension Ecosystem
The finance ministry is taking a measured approach by studying both domestic expertise through EPFO and international practices. The UPS offers a guaranteed, sustainable pension model aimed at balancing fiscal responsibility with retirement security
