Unified Pension Scheme offers security, but why aren't employees joining?

India Today

2 days ago

When the Central Government launched the Unified Pension Scheme (UPS) in 2024, it was pitched as a game-changer for retirement security. Designed as an alternative to the National Pension Scheme (NPS), the UPS aims to give government employees something the NPS cannot: an assured monthly pension for life.advertisementWHAT UPS OFFERSAt first glance, it seems like a winning proposition. UPS offers a guaranteed pension of 50% of the average basic salary in the last year before retirement for those with at least 25 years of service. Even those with just 10 years of service can get a minimum pension of Rs 10,000 a month.In case of the pensioner's death, their family would receive 60% of the last pension drawn. Plus, pensions are adjusted for inflation, meaning your money's value won't shrink over time.WHY WAS UPS INTRODUCED?Before UPS, the NPS was the standard for new government recruits, but it had a big drawback, it offered market-linked returns, not guaranteed payouts.This made retirement income uncertain. UPS was meant to fix this by blending the NPS's contribution model with an old-style, defined pension promise.HOW UPS WORKSUnder UPS, employees contribute 10% of their basic pay plus Dearness Allowance, and the government matches that amount.On top of that, the government adds another 8.5% contribution to a common pool to support the assured payouts, a higher share than the 14% it contributes under NPS.WHY ARE EMPLOYEES HESITATING?Yet, the response has been lukewarm. An RTI reply obtained by India Today shows that by July 20, 2025, only 30,989 employees had opted for UPS out of about 23 lakh enrolled in NPS; that's barely 1.35%.According to Rahul Mathur, CEO of Roinet Insurance Broker Pvt Ltd, the reasons are quite clear.'UPS has some real advantages, but there are gaps that make employees hesitate. The biggest is the lack of clarity on tax rules. People don't know how their pension or lump-sum withdrawals will be taxed after retirement,' he explains.Another issue is flexibility. NPS allows employees to choose how their money is invested, giving scope for higher returns. UPS, on the other hand, offers little control over investments.'Younger employees often prefer NPS because over a long career, market-linked returns could outpace the guaranteed pension,' says Mathur.There's also the matter of lump sums. UPS offers a smaller one-time payout compared to NPS, which could be a disincentive for some employees, Mathur pointed out. And if an employee leaves government service before completing 10 years, they could lose out on benefits entirely, he added.THE TRADE-OFFSimply put, UPS removes market risks but also limits growth opportunities and flexibility. For many, that trade-off doesn't feel worth it, at least not yet.
'At the end of the day,' Mathur says, 'it's about personal priorities. Those who want certainty will like UPS. Those who want higher long-term returns and control will stick with NPS.'Until the government clears up tax rules and addresses concerns around flexibility, it's unlikely the migration numbers will see a big jump.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- Ends