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Informist, Friday, Sept. 26, 2025

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The government's much touted pension plan--the Unified Pension Scheme--has failed to spark interest among central government staff, with less than 3% opting to switch from the National Pension System despite the incentives that were provided over the last several months. "Around 75,000 central government employees shifted to Unified Pension Scheme, and we expect it to go up to 100,000 by Tuesday, the last day to exercise the option," a senior government official said Friday. According to NPS Trust, there are 2.78 million central government subscribers currently under the National Pension System.

 

"There seems to be trust-deficit within the staff on the policy decisions that led to the launch of Unified Pension Scheme," the official with direct knowledge of the matter said. "There is no doubt that the demand from central government staff is simple and concrete--assured pension like the Old Pension Scheme," the official said. The Unified Pension Scheme, which came into effect on Apr. 1, was launched after strong demand from central staff for assured pension from the government under the National Pension System. 

 

The government introduced the defined-contribution National Pension System on Jan. 1, 2004, replacing the defined benefit pension scheme. All states, except Tamil Nadu and West Bengal, joined the new plan. Under the Old Pension Scheme, government employees who have completed at least 10 years of service receive a monthly guaranteed pension based on their last drawn basic salary and the years of service. Under this plan, employees do not need to contribute.

 

Combining the National Pension System and Old Pension Scheme, the government announced the Unified Pension Scheme in August last year after numerous rounds of discussions with stakeholders, including employee associations. The launch of the latest pension scheme also came at a time when the unpopularity of the National Pension System among government workers was snowballing into a political issue, with states like Chhattisgarh, Rajasthan, Punjab, and Karnataka switching back to the Old Pension Scheme despite the higher fiscal costs.

 

Unified Pension Scheme retains employee contributions but guarantees a pension equivalent to 50% of the average basic pay drawn in the final 12 months of service. A floor of INR 10,000 per month is set for those with at least 10 years of service. The scheme also includes inflation-indexing to preserve real value.

 

Since Unified Pension Scheme has defined benefits, employee contributes 10% of basic pay and dearness allowance, while government contributes another 18.5% towards the pool. The corpus is then invested into government securities and equity market, based on which their ultimate pension is calculated. On other hand, under the National Pension System, the employee can contribute up to 14% with a matching contribution from the government. The fiscal implication of the Unified Pension Scheme is higher since the government has to ensure the defined benefit to the pensioner even if the investments do not meet the guaranteed return.

 

Despite these benefits, the transition to the new plan has found few takers. According to the official, the incentives for the Unified Pension Scheme that were rolled out or were notified from time to time have also added to the confusion on when to time the switch, with many holding back, hoping that more incentives will be rolled out. In July, the government had said that the tax benefits available under the National Pension System will now apply to Unified Pension Scheme as well. The National Pension System has a host of tax incentives including tax deduction of up to INR 200,000 under section 80CCE and 80CCD(1B) of the Income Tax Act. Even these notifications could not woo central government staff. 

 

This lacklustre demand for the new scheme assumes more significance especially as the government has no plan to extend the deadline till which a switch can be made to the Unified Pension Scheme. According to a senior finance ministry official, giving another extension to employees to shift to Unified Pension Scheme "is not on the cards". The government had originally fixed Jun. 30 as the deadline to switch to Unified Pension Scheme, but given the extremely muted response, the deadline was extended till Sept. 30. 

 

Throughout September, the government organised multiple outreach programmes to popularise Unified Pension Scheme and also issued numerous reminders to nudge central government employees to make the switch. 

 

The official cited above said that although an extension is not being discussed currently, the Pension Fund Regulatory and Development Authority and the Department of Financial Services can take a last-minute call to give another extension. With just four days remaining before the deadline lapses, the future of individuals who have shifted to the Unified Pension Scheme remains to be seen.  End

 

Edited by Akul Nishant Akhoury

 

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