The Finance Ministry is currently working on setting rules for how the government should invest a special pension fund created under the Unified Pension Scheme (UPS). To do this properly, they are studying how pension funds are managed in other countries, as well as learning from India’s own experience with managing the Employees’ Provident Fund Organisation (EPFO).
What is the Unified Pension Scheme (UPS)?
The UPS is a new pension scheme introduced by the government. It promises a fixed or assured pension to central government employees after retirement. This scheme came into effect from April 2025 and was designed to offer more security than the existing National Pension Scheme (NPS), which doesn’t guarantee a fixed pension.
UPS promises a pension amounting to 50% of the average basic salary in the last 12 months before retirement, provided they have completed at least 25 years of service.
How Does the UPS Work?
The pension money collected under UPS is divided into two parts:
- Individual Pension Fund
This part contains the money contributed monthly by the employee (10% of their basic pay + dearness allowance) and a matching 10% contribution from the government.- Employees can decide how this part is invested—for example, they might choose between safe government bonds or more risky stock market options.
- Pool Corpus
In addition to the above, the government will contribute another 8.5% of the employee’s basic pay and DA. This money goes into a separate common pool, not tied to individual accounts.- This part is managed only by the government, and employees do not have any control over how it is invested.
- The goal of this pool is to support the government’s assured pension promise by generating long-term returns.
Why Are Investment Rules Important?
Since the government is guaranteeing a fixed pension under UPS, it is essential to make sure that the money in the pool corpus earns enough over time. Otherwise, the scheme could become financially unsustainable. To make sure the money grows steadily and safely, the Finance Ministry is carefully reviewing:
- How pension funds are managed globally (what countries like Canada, Australia, and the UK are doing)
- How the EPFO handles its funds in India
This research will help the government design investment rules that ensure:
- Steady and safe returns
- Long-term security of the pension system
- Proper risk management
What Happens Next?
A senior official said that the Finance Ministry will soon finalize these investment rules. The goal is to choose an investment model that best suits India’s needs and economic environment.
How Is UPS Better than NPS?
Under the NPS, government employees don’t get a guaranteed pension. The final amount depends on how well the invested funds perform. But in UPS, employees are assured a fixed pension after retirement.
Also:
- Under NPS, the government contributes 14%
- Under UPS, the total government contribution is 18.5% (10% in the individual fund + 8.5% in the pool corpus)
This makes UPS a more attractive option for employees who prefer security over risk.
Can Employees Choose Between UPS and NPS?
Yes. Employees have the option to stay with the NPS. But once they opt for the UPS, they cannot switch back to the NPS. So, it’s an important decision that employees need to consider carefully.
