PFRDA notifies regulations for operationalisation of Unified Pension Scheme

1. The Pension Fund Regulatory and Development Authority (PFRDA) has announced the Unified Pension Scheme (UPS) for Central Government employees who are part of the National Pension System (NPS).
2. This scheme will become effective on April 1, 2025.
    

Key Features of the Unified Pension Scheme:
 

1. Assured Pension: Employees will receive 50% of their average basic pay from the last 12 months before retirement if they have worked for at least 25 years.
2. Assured Minimum Pension: If an employee retires after at least 10 years of service, they will get a minimum pension of Rs 10,000 per month.
3. Assured Family Pension: If an employee passes away after retirement, their family will receive 60% of the pension the employee was getting.
4. Inflation Adjustment: Pension amounts will be adjusted for inflation using the All India Consumer Price Index for Industrial Workers (Dearness Relief).
5. Lump Sum Payment at Superannuation: Retirees will also receive a lump sum payment in addition to their monthly pension.
6. Contributory Scheme: Both the employee and government contribute to the scheme. Employees contribute 10% of their basic pay plus Dearness Allowance (DA), while the government contributes 18.5%.
    

Eligibility Criteria:

 

1. Existing Employees: Employees in service as of April 1, 2025, who are already covered under NPS.
2. New Recruits: New employees joining the Central Government after April 1, 2025.
3. Retired Employees: Employees who were under NPS and retired or voluntarily retired before March 31, 2025. If the subscriber passed away before choosing UPS, their spouse can apply.

Implementation Timeline: The UPS regulations will begin on April 1, 2025.
 

What is National Pension Scheme (NPS):
 

1. NPS replaced the Old Pension Scheme (OPS) on January 1, 2004.
2. It is a market-linked scheme managed by PFRDA.
3. Under NPS, employees contribute 10% of their basic pay and DA, while the government contributes 14%.
4. The main issue with OPS was that it was unfunded, leading to high pension liabilities for the government. The pension liability grew from Rs 3,272 crore in 1990-91 to Rs 1,90,886 crore in 2020-21.
    

Working of NPS:
 

1. NPS has no guaranteed pension, and the amount depends on market returns.
2. The scheme is funded by employee and government contributions, unlike OPS, where the government fully funded pensions.
3. Subscribers can choose investment options for their contributions.
    

Opposition to NPS:
 

1. NPS faced criticism because employees had to contribute to their pension and received lower guaranteed returns compared to OPS.
2. To address concerns, a committee led by T V Somanathan was formed in 2023, leading to the creation of the UPS.
    

Comparison of Pension Schemes:
 

Feature	Unified Pension Scheme (UPS)	New Pension Scheme (NPS)	Old Pension Scheme (OPS)
Type of Scheme	Hybrid (Assured + Contribution)	Contribution-based	Defined benefit (Assured pension)
Applicability	Central govt. employees (states can adopt)	Central and state govt. employees (except armed forces)	Pre-2004 govt. employees
Pension Guarantee	Minimum pension guaranteed	No assured pension; depends on market returns	Guaranteed 50% of last drawn salary
Employee Contribution	10% of salary; 18.5% by govt.	10% of salary; 14% by govt.	No contribution from employees
Inflation Adjustment	Yes (linked to inflation index)	No guaranteed adjustment	Yes (DA revisions based on inflation)
Withdrawal Options	Lump sum + monthly pension	60% lump sum, 40% annuity	No lump sum, only pension
Family Pension	60% of pension for dependents	Not guaranteed, depends on annuity plan	50% of pension to family

This scheme is an attempt to maintain a balance between the guaranteed benefits of the OPS and the contribution-based structure of the NPS.

 

About Pension Fund Regulatory and Development Authority (PFRDA) :

 

Establishment

1. It was Set up under the PFRDA Act, 2014 as a statutory regulatory body.

Objective

1. Promote old-age income security by regulating pension funds.
2. Protect the interests of subscribers to pension schemes.

Jurisdiction

1. Comes under the Ministry of Finance.
2. Headquartered in New Delhi with regional offices across the country.

Composition (Section 4 of PFRDA Act)

1. Chairperson.
2. 3 whole-time members.
3. 3 part-time members.
4. Members must have knowledge in economics, finance, or law, with at least one person from each discipline.

Functions

1. Regulation: Oversee the National Pension System (NPS) and other pension schemes under the Act.
2. Public Education: Raise awareness on pensions, retirement savings, and related matters; train intermediaries.
3. Approval & Norms: Approve pension schemes and set investment guidelines.
4. Protection: Safeguard the interests of NPS subscribers and those in approved schemes.
5. Intermediary Regulation: Register and regulate intermediaries (NPS Trust, Points of Presence, etc.).
6. Cost Control: Ensure economical and reasonable operational costs for intermediaries.
7. Grievance Redressal: Strengthen robust and time-bound grievance mechanisms.
8. Dispute Resolution: Adjudicate disputes between intermediaries and subscribers.