In a major reshuffle, the Cabinet of Prime Minister Narendra Modi on Saturday cleared the Unified Pension Scheme or UPS for central government employees. This step is meant for ensuring assured pensions, family pensions along with minimum pensions to 23 lakh government employees. The scheme has provision and will be implemented from the financial year starting 1st of April 2025.

Through this reform, there will be improvement in the feeling of security among the governmental employee and for all those who will be granted assured pensions, family pensions and minimum pensions. The State governments will also have an opportunity to adopt Unified Pension Scheme.

Assured Pension:

Under this scheme the pension payable is 50 per cent of the average of the basic pay during the 12 months preceding the date of retirement provided the employee has completed 25 years of qualifying service. The pension will be actural for other people with short service period and must be not less than 10 years in service.

Example: Employee X has an average basic pay of ₹80,000 over the last 12 months and has completed 25 years of service.

Assured Pension = 50% of ₹80,000 = ₹40,000 per month.

The pension amount is proportionately reduced for service periods between 10 and 25 years.

Example: Employee Y has an average basic pay of ₹80,000 over the last 12 months but has only completed 15 years of service.

Service Ratio = 16 years / 25 years = 0.64 (64%)

Assured Pension = 50% of ₹80,000 × 0.64 = ₹25,600 per month.

Assured Family Pension:

In the event of an employee’s death, their family will be eligible to receive 60 per cent of the pension amount that the employee was receiving immediately before their death. This ensures financial security for the employee’s dependents.

Example: Employee A was receiving a pension of ₹40,000 per month before passing away.

Assured Family Pension = 60% of ₹40,000 = ₹24,000 per month.

Assured Minimum Pension:

The new scheme guarantees a minimum pension of Rs 10,000 per month after a minimum of 10 years of service, providing a safety net for employees with lower salaries.

Example: Employee Z Even though 50% of ₹18,000 is ₹9,000, the employee will receive the assured minimum pension of ₹10,000 per month, as it is higher.

Other Benefits of Unified Pension Scheme:

Inflation Indexation:

The assured pension, family pension, and minimum pension will be indexed to inflation.

Dearness Relief:

This will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to the provisions for serving employees.

Lump Sum Payment: 

In addition to gratuity, employees will receive a lump sum payment at retirement equivalent to 1/10th of their monthly emoluments (pay + DA) as of the retirement date for every completed six months of service. This payment will not affect the amount of the assured pension.

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in