The Ministry of Finance has announced a new one-time, one-way option for Central Government employees enrolled in the Unified Pension Scheme (UPS) to switch
to the National Pension System (NPS). The official directive, dated August 20, 2025, allows eligible employees to make this change up to one year before superannuation or three months before voluntary retirement. However, those facing dismissal, removal, or disciplinary action are excluded from this option. Employees who choose to switch will forfeit their entitlement to UPS benefits, including the guaranteed pension payouts. The government will transfer its 4 per cent differential contribution to the individual’s NPS corpus upon exit, in line with PFRDA guidelines. All ministries and departments have been instructed to notify eligible personnel about this provision to facilitate informed decision-making. UPS Vs NPS: What Employees Should Know While the UPS guarantees a fixed pension, typically 50 per cent of the average basic salary in the last year of service for employees completing 25 years, NPS returns are market-linked, depending on investment performance in equities, bonds, and government securities. This means NPS carries inherent investment risks, unlike the assured payouts under UPS. One important distinction is inflation protection. UPS pensions increase with Dearness Allowance (DA) revisions, helping shield retirees from inflation’s impact. In contrast, NPS lacks automatic inflation adjustments, posing potential long-term challenges for retirees relying solely on its corpus. Also Read - Next-Gen GST Reforms: What Changes for Cigarettes, Pan Masala, And Other Tobacco Products Family Pension Under UPS Vs NPS UPS offers a family pension, usually around 60 per cent of the original pension amount, to surviving dependents, ensuring financial support continues after the pensioner’s demise. NPS does not inherently provide this protection, potentially leaving families financially vulnerable without additional coverage. This one-time switch option reflects the government’s effort to streamline pension frameworks and promote NPS as the future of retirement planning, balancing flexibility with critical considerations around security and risk.
