The Unified Pension Scheme (UPS), launched by the central government to replace the Old Pension Scheme (OPS) and NPS, has not received a warm response from employees. Out of 27 lakh central employees, only about 1% have joined so far. Here’s why UPS is facing resistance and what the government is doing about it.
1. What is the Unified Pension Scheme (UPS)?
UPS was announced in April 2024 in response to demands to restore benefits similar to the Old Pension Scheme (OPS). The key features include:
Employee Contribution: 10% of basic salary
Government Contribution: 18.5% of basic salary
Pension Guarantee: 50% of average basic salary of the last 12 months for employees with 25+ years of service
Minimum Pension: Rs 10,000 per month for employees with 10+ years of service
Family Pension: 60% of last drawn pension after the death of the pensioner
Inflation-Linked: Pension increases with inflation
Despite these benefits, adoption remains low, with only a small fraction of employees enrolling.
2. Why Are Employees Avoiding UPS?
Several factors contribute to employee hesitation:
Long service Requirement: Full benefits require 25+ years of service
High Contribution: Employees must contribute 10% of salary, which is considered steep by some
Limited Early Retirement Benefits: Those retiring early get fewer advantages
Family Pension Limits: Benefits to families are seen as restricted compared to OPS
Uncertainty: Concerns about death benefits during service, taxation, and cost vs benefit make employees cautious
No Exit Option: Once enrolled, employees cannot easily switch to another scheme—though a one-time one-way switch has recently been introduced
3. government Measures to Promote UPS
The government has taken several steps to improve UPS attractiveness:
Tax Benefits: Income tax exemptions like those in NPS, including tax-free withdrawal of 60% at retirement
Improved Death & Disability Benefits: Enhancements similar to OPS for pensioners’ families
Gratuity Benefits: Retirement and death gratuity for UPS employees
Extended Deadlines: Switching from NPS to UPS extended from June 30 to september 30
One-Time Switch Facility: Employees can switch from UPS to NPS one year before retirement or three months before voluntary retirement
These measures aim to reduce hesitation and make UPS more employee-friendly.
4. Fiscal Implications of UPS
UPS is designed to control government pension expenditure:
Estimated Extra Cost: Rs 8,500 crore in FY26, gradually increasing as salaries rise
Controlled Employee Additions: Limiting new hires keeps expenses in check
Long-Term Savings: After 2036, retirees and family pensioners may pass away, and the pension capital will not return to successors, reducing long-term fiscal burden
No Pension Reset: Unlike OPS, basic pension won’t be revised after pay commission updates, saving resources for future generations
Conclusion
While UPS promises a guaranteed pension and inflation protection, employees remain skeptical due to high contributions, long service requirements, limited early retirement benefits, and family pension restrictions. The government’s recent measures, including tax benefits and flexible switching, aim to improve adoption. However, with only 1% participation so far, it’s clear that employees are waiting for clarity, flexibility, and tangible benefits before committing to the scheme.
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