Why government employees are still choosing NPS despite Centre's push for UPS

Finance Minister Nirmala Sitharaman told Parliament that the Centre has no proposal to amend or replace the Unified Pension Scheme. The statement comes as government backs UPS benefits while many employees continue to prefer NPS.

In Short

• Centre has no plan to amend or replace Unified Pension Scheme (UPS)
• UPS remains optional under National Pension System for central employees
• Employees prefer NPS due to market-linked returns and financial autonomy

Finance Minister Nirmala Sitharaman informed Parliament on Tuesday that the Centre has no proposal to amend or replace the Unified Pension Scheme.

“UPS has been introduced as an option for the employees of the Central government who are covered under the NPS. As on date, there is no proposal under consideration to make any changes or replace the UPS,” the Finance Minister said in a written reply to a question in the Lok Sabha.

She maintained that it will continue as an optional scheme under the National Pension System for Central government employees.

Under the scheme, newly recruited employees, existing Central government staff, past eligible retirees and legally wedded spouses of eligible deceased retirees are among the key subscribers.

The data shared with the parliament has posed significant questions about government employees' preference when it comes to safeguarding their future.

WHY IS THE GOVERNMENT KEEN ON UPS?

Effective from April 1, 2025, UPS is provided as an option under the National Pension System (NPS) for Central Government employees.

It is designed to provide assured, inflation-indexed, and adequate retirement benefits, addressing concerns of longevity protection and pension predictability.

The government has vouched for UPS for mainly three reasons.

First, as it removes market risk by providing an assured 50% average basic pay pension for 25 years of service.

Second, due to its addition of Dearness Allowance (DA) indexation, the pension value scales with price rises.

Third, in case of the pensioner’s death, it guarantees a family pension to spouses at 60% of the employee's last drawn pension.

Even though it has targeted balancing employee retirement security with long-term fiscal discipline, employee interest remains to be lukewarm.

Manjeet Singh Patel, National President at All India NPS Employees Federation (AINPSEF) told India Today Digital that UPS does not reflect any change in the employee’s contribution. It still shows a 10% deduction, and adds to the government’s contribution.

“The UPS simply increases the contribution made by the government. Even if the employees do not opt for UPS at an initial stage and wish to switch to UPS nearing retirement, it is easy for the government to accept this proposal as it depends on the calculation matrix that the government uses,” he added.

Considering the uncertainties of young employees' future plans, their behaviour has shown an inclination towards the earlier National Pension Scheme (NPS).

“If an employee resigns early from public service rather than retiring at age 60, they completely lose access to the assured pension benefits that they earlier enjoyed with NPS,” Patel said.

Thus, individual young employees have also encountered functional limitations with the scheme.

WHY NPS RETAINED ITS SUBSCRIBERS?

The NPS shifts the retirement planning responsibility from state-guaranteed payouts to individual, market-linked accounts. Its market-led social security has been a crucial factor for the majority of government employees to opt for it.

As per the FAQ shared by Pension Fund Regulatory and Development Authority (PFRDA), NPS remains one of the lowest-cost pension schemes in the world. This is because the PFRDA caps fund management and intermediary charges by law, while keeping intermediary expenses near zero.

With the option to choose the fund managers and determine asset allocation strategies, employees believe they have financial autonomy over their funds for the future.

Moreover, the biggest takeaway in its favour is the government’s offer of a one-time, one-way switch facility. This allows the employees who tried the UPS to safely revert to the NPS, where they understand the risks and benefits associated with it comprehensively.

An added benefit for employees is that they own their specific Permanent Retirement Account Number (PRAN) corpus rather than rely on a collective pool.

Thus, their final corpus matches market realities directly. This avoids the risk of paying the mandatory "underperformance deficits" out of their own pockets.

The debate between employees still preferring NPS over UPS also comes at a time when the consultation meetings for the 8th Pay Commission are ongoing.

One of the major demands of the employee Union bodies highlighted in the memorandums submitted to the 8th Pay Commission in regard to pensions is to bring back the Old Pension Scheme (OPS).

- Ends