Unified Pension Scheme

The Unified Pension Scheme is the assured-payout option within the National Pension System, operative for central government employees from 1 April 2025, which pays 50% of the average basic pay of the last 12 months of service to an employee who superannuates with at least 25 years of qualifying service. It was notified by the Department of Financial Services through notification F. No. FX-1/3/2024-PR dated 24 January 2025 and operationalised by the Pension Fund Regulatory and Development Authority through regulations of 19 March 2025.

The scheme sits between the two that preceded it. The Old Pension Scheme, for employees appointed on or before 31 December 2003, promised a defined pension of half the last pay, cost the employee nothing, and was paid entirely from the budget. The National Pension System, for those who joined on or after 1 January 2004, made the pension contributory and market-linked and assured nothing at all. The Unified Pension Scheme keeps the funded, contributory structure of NPS and adds a government-backed floor, so that a contributory scheme produces a defined outcome.

The assurance is not unconditional, and the conditions are where most summaries of the scheme stop short. The payout is measured against a notional benchmark corpus, and a subscriber whose account falls below it draws proportionately less. A final withdrawal of up to 60% of the corpus is available at retirement and cuts the monthly payout by the same proportion. The individual corpus itself is surrendered to a pooled fund at exit. Voluntary retirement carries a 25-year threshold and a deferred start date, and resignation, removal or dismissal ends the entitlement outright.

This article sets out the governing instruments and dates, who could opt and when the window closed, the payout formula and the minimum, the lump sum, the two corpuses and the benchmark guarantee, the final withdrawal and what it costs, partial withdrawal and investment choice during service, the treatment of voluntary retirement, death in service, invalidation and resignation, gratuity, the monthly top-up for past retirees, the tax position after the Taxation Laws (Amendment) Act, 2025, the switch back to NPS, and how the scheme compares with NPS and the Old Pension Scheme. Every load-bearing figure is cited to the notification, the regulations, the rules, or the Office Memorandum that carries it.

Governing instruments and dates

Four instruments govern the Unified Pension Scheme, and each does a distinct job. The Union Cabinet approved the scheme on 24 August 2024. The Department of Financial Services notified it as an option under NPS by notification F. No. FX-1/3/2024-PR dated 24 January 2025, issued in partial modification of the Department of Economic Affairs notification F. No. 5/7/2003-ECB&PR dated 22 December 2003 that had created NPS. PFRDA then notified the PFRDA (Operationalisation of Unified Pension Scheme under National Pension System) Regulations, 2025 on 19 March 2025, which carry the formulas, the corpus mechanics and the forms. The Department of Pension and Pensioners’ Welfare notified the Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025 as G.S.R. 599(E) dated 2 September 2025, which govern the service-side questions of enrolment, options, exits and proceedings. The scheme itself took effect from 1 April 2025.

The 2025 Rules were made under the proviso to article 309 and clause (5) of article 148 of the Constitution, after consultation with the Comptroller and Auditor General in respect of the Indian Audit and Accounts Department. They apply to central government employees, including civilian defence staff, appointed substantively on or after 1 January 2004 and covered under NPS. Railway servants, members of the All India Services, casual and daily-rated staff, and contractual employees are outside them, as are employees to whom the CCS (Pension) Rules, 2021 apply. Railway establishments are covered by the parallel Railway Services rules, and the Railway Board circulates the PFRDA instruments separately.

The regulations have been amended once. PFRDA gazette notification No. PFRDA-16/07/0001/2025-SUP-CG dated 23 December 2025 amends the Operationalisation Regulations of 19 March 2025 and also touches the PFRDA (Exit and Withdrawal under the National Pension System) Regulations, 2015; it was circulated to railway establishments as the Amendment Regulations, 2026 by Railway Board RBE No. 20/2026 dated 13 March 2026. A reader working from the 19 March 2025 text should read it as amended.

Entitlements around the scheme have also been filled in during its first year. By an Office Memorandum dated 13 March 2026, the Department of Pension and Pensioners’ Welfare extended Fixed Medical Allowance to central government pensioners covered by the Unified Pension Scheme on the terms of its earlier orders of 6 December 2023 and 7 February 2025, closing a gap that had left UPS optees outside a benefit their NPS and Old Pension Scheme counterparts already drew.

Who could opt, and the closed window

The option window for serving employees and past retirees closed on 30 November 2025 and has not reopened. Three categories could exercise it: employees in service under NPS as on 1 April 2025, who applied to the Head of Office in Form A-2; new recruits joining central government service on or after that date, who apply in Form A-1 within 30 days of joining; and employees who had superannuated or retired on or before 31 March 2025 under NPS with at least 10 years of service, where the retirement was not on account of a penalty, together with the legally wedded spouse of such a retiree who has since died, in Form B-2 or Form B-6.

The window was extended twice. The PFRDA Regulations of 19 March 2025 originally allowed three months, to 30 June 2025. An Office Memorandum of 1 July 2025 extended it to 30 September 2025, and a Department of Financial Services order, File No. 11/14/2025-PR dated 30 September 2025, extended it a second time to 30 November 2025, the ministry citing the changes announced in the interim on the switch facility, resignation benefits, gratuity and tax exemptions. An employee who filed no option by that date continues under plain NPS with no further route into the Unified Pension Scheme. New recruits joining after the window are unaffected, since their choice arises at the time of joining.

The scheme applies to central government employees. A state government may adopt it for its own employees, and several union territory administrations have issued their own orders, but it does not extend to state employees automatically. In a written reply to Lok Sabha Unstarred Question No. 218 on 20 July 2026, the Ministry of Finance stated that no proposal was under consideration to extend the benefits to other pension schemes or sectors.

The assured payout formula

The assured payout is 50% of the average basic pay of the last 12 months of service, and regulation 15(1)(i) of the PFRDA Regulations of 19 March 2025 states it as a formula rather than a rate:

Assured Payout (A) = (½ of P) x (Q/300)

P is the average of the basic pay, including non-practising allowance where applicable, for the last 12 months before the date of superannuation, voluntary retirement, or retirement under Fundamental Rule 56(j) where that retirement is not a penalty under the CCS (CCA) Rules, 1965. The Head of Office certifies it. Q is the months of qualifying service, also certified by the Head of Office. Two limits sit inside the formula: where Q exceeds 300 it is taken as 300, so 25 years of qualifying service produces the full half of pay and longer service adds nothing to the rate; and where Q is less than 120, the Unified Pension Scheme does not apply at all.

Between 120 and 300 months the payout is proportionate, in the ratio of qualifying service to 300 months. An employee retiring with 15 years of qualifying service therefore draws 180/300, or 30% of the average basic pay of the last 12 months, rather than 50%. Against that proportionate figure regulation 15(1)(ii) sets a floor: where the computed amount falls below Rs. 10,000 a month and qualifying service is at least 120 months, the minimum guaranteed payout of Rs. 10,000 a month applies instead.

Qualifying service is defined narrowly in the explanation to regulation 13. It runs from the date the employee became eligible to be enrolled under NPS, or under the Unified Pension Scheme for a new recruit, to the date of superannuation or retirement. Time spent on deputation or foreign service for which the applicable contributions were not received into the individual corpus and the pool corpus does not count. Unauthorised absence that is not condoned wipes out the entire past period of service, not merely the period of absence. Suspension counts where the employee is fully exonerated, or where only a minor penalty is imposed and the suspension is held wholly unjustified, and otherwise only to the extent the competent authority expressly declares. Extraordinary leave other than on medical certificate counts only where the appointing authority allowed it to count at the time of grant, for civil commotion or for higher scientific and technical studies, and the absence of a service-book entry at the time of grant makes the leave count as qualifying service by default.

The lump sum at exit

A lump sum is payable at exit in addition to the monthly payout, and it does not reduce it. Regulation 14(1) of the PFRDA Regulations of 19 March 2025 fixes it at one-tenth of the last drawn basic pay, including non-practising allowance where applicable, plus dearness allowance on it, for each completed six months of qualifying service certified by the Head of Office:

Lumpsum Payment = (E/10) x L

E is basic pay plus dearness allowance on the date of superannuation, voluntary retirement or FR 56(j) retirement, and L is the number of completed six-month periods of qualifying service. Any period short of six months is disregarded. Regulation 14(3) states expressly that the lump sum is in addition to the assured payout and does not affect its quantum.

Unlike the assured payout, the lump sum is not capped at 300 months of service, so it continues to grow with every completed six-month period. It is also separate from the retirement gratuity, which is payable to Unified Pension Scheme subscribers under the CCS (Payment of Gratuity under NPS) Rules, 2021. A retiring employee therefore receives three distinct payments alongside the monthly payout: this service-linked lump sum, the gratuity, and any final withdrawal or surplus from the individual corpus.

Worked example

An employee retiring on superannuation from Level 11 of the pay matrix at basic pay of Rs. 78,500, with 30 years of qualifying service and dearness allowance at 60%, draws an assured payout of Rs. 39,250 a month. Q is 360 months, capped at 300, so the ratio is 1: half of Rs. 78,500 is Rs. 39,250. Dearness relief at the current 60% adds Rs. 23,550, giving Rs. 62,800 in the first month.

The lump sum under regulation 14 is computed on emoluments of Rs. 1,25,600, being basic pay of Rs. 78,500 plus dearness allowance at 60% of Rs. 47,100. One-tenth of that is Rs. 12,560, and 30 years gives 60 completed six-month periods, so the lump sum is Rs. 7,53,600. The retirement gratuity is payable separately.

The same employee retiring with 15 years of qualifying service instead draws 180/300 of half of pay, or Rs. 23,550 a month, and a lump sum of Rs. 12,560 multiplied by 30, or Rs. 3,76,800. On the pensioner’s death the spouse receives 60% of the payout being drawn, Rs. 23,550 a month in the 30-year case, plus dearness relief.

The UPS payout calculator works the same arithmetic for any pay and length of service. Two adjustments can cut the Rs. 39,250 figure before it is ever paid. If the individual corpus stands at 90% of the benchmark corpus at retirement and the shortfall is not replenished, the payout falls to Rs. 35,325. If the employee also takes the maximum final withdrawal of 60%, the payout falls to 40% of that, or Rs. 14,130 a month for life. The assured payout is the ceiling, and the admissible payout is what is actually paid.

The individual corpus, the pool corpus and the benchmark

The Unified Pension Scheme is a funded scheme running on two corpuses, not a budgetary promise. The individual corpus sits in the employee’s own Permanent Retirement Account Number and is built under regulation 6 from the employee’s monthly contribution of 10% of basic pay plus dearness allowance and an equal matching credit by the central government. The pool corpus is built under regulation 7 from an additional central government contribution estimated at 8.5% of the aggregate basic pay plus dearness allowance of all subscribers, from the individual corpus balances transferred in at exit, and from any further contribution the central government defines. The pool corpus is managed by pension funds on the central government’s investment instructions and is audited annually by an auditor appointed by PFRDA.

The guarantee runs through the benchmark corpus, defined by regulation 12. It is a notional value computed monthly for every subscriber by the central recordkeeping agency on four assumptions: that all employer and employee contributions were received regularly and on time for each month of qualifying service, that they were invested in the default pattern determined by PFRDA, that no partial withdrawals were made, and that any voluntary contributions are disregarded. Contributions arising from arrears, such as arrears of dearness allowance, are counted and valued on the default pattern as and when received. Both the individual corpus and the benchmark corpus appear in the subscriber’s monthly UPS account statement, so the gap between them is visible throughout service rather than discovered at retirement.

The comparison is struck on the date of exit. Regulation 11(7) makes the subscriber entitled to any surplus of the individual corpus over the benchmark and liable for any shortfall against it. A surplus is paid out to the subscriber after the UPS Payout Order is issued. A shortfall may be replenished at any time up to the submission of Form B1, valued at the net asset value of units on the date of replenishment, and if it is not replenished the payout is proportionately reduced under regulation 11(9). Because the benchmark is computed on the default pattern, a subscriber who chooses a different pension fund or investment pattern carries the whole of the divergence, in both directions.

Final withdrawal of up to 60%, and what it costs

A Unified Pension Scheme subscriber may take up to 60% of the corpus as a final withdrawal at exit, and the monthly payout falls by exactly the same proportion. Regulation 15(2) of the PFRDA Regulations of 19 March 2025 allows a withdrawal not exceeding 60% of the individual corpus or the benchmark corpus, whichever is lower, on the date of superannuation, voluntary retirement or FR 56(j) retirement. Where the individual corpus exceeds the benchmark, the withdrawal is calculated on the benchmark and the excess is credited to the subscriber’s bank account in any event.

Regulation 15(1)(iv) then converts the assured payout into the admissible payout:

Admissible Payout = Assured Payout x IC/BC x (1-FW%)

IC is the value of the individual corpus, BC the value of the benchmark corpus, with IC treated as capped at BC, and FW is the final withdrawal expressed in percentage points. The two reductions compound. A subscriber whose corpus matches the benchmark and who takes the full 60% receives 40% of the assured payout for the rest of life, and the family payout that follows is 60% of that reduced figure. This is the closest analogue in the Unified Pension Scheme to commutation of pension under the Old Pension Scheme, with one structural difference that matters: a commuted pension is restored after 15 years, whereas a final withdrawal under regulation 15(2) reduces the payout permanently.

Contributions, and the figure most often stated wrongly

The government contributes 18.5% under the Unified Pension Scheme, but only 10% of it reaches the employee’s own account. Regulation 6(1) fixes the employee’s contribution at 10% of basic pay plus dearness allowance, and regulation 6(2) requires the central government to match it with an equal credit to the individual PRAN. Regulation 7(1)(i) adds a separate central government contribution estimated at 8.5% of the aggregate basic pay plus dearness allowance of all subscribers, credited to the pool corpus and not to any individual account. The 8.5% is expressly an estimate on an aggregate basis, not an individual entitlement, because it funds the assurance across the whole body of subscribers.

The individual-corpus government share under the Unified Pension Scheme is therefore 10%, against 14% under plain NPS. Summaries that report 14% as the UPS individual-corpus rate are describing NPS. The 14% is restored only where a subscriber exercises the one-time switch back to NPS, and it applies to future contributions from that point. The trade is deliberate: 4 percentage points of individual accretion are diverted to the pool in exchange for the assured payout the pool funds.

The mechanics are handled monthly through the pay chain. The Drawing and Disbursing Officer deducts the contribution and sends the bill to the Pay and Accounts Officer by the twentieth of each month; the PAO uploads the Subscriber Contribution File to the central recordkeeping agency by the twenty-fifth; and the contributions are remitted to the trustee bank by the last working day of the month, with the March contribution remitted on the first working day of April. Contribution continues during deputation to a central or state government department and during probation, and is not payable for periods of absence from duty. During suspension the contribution is worked out on the emoluments the subscriber ultimately becomes entitled to, with the government share based on the subsistence allowance paid, and any shortfall against what was already deposited is credited to the corpus later at the net asset value of the month of adjustment. Arrears from a retrospective pay increase are treated as contributions for the month of actual payment.

Partial withdrawal and investment choice during service

A Unified Pension Scheme subscriber may make up to three partial withdrawals in the whole tenure of the account, of not more than 25% of the subscriber’s own contributions excluding accretion, after a lock-in of three years from the date of enrolment under UPS or NPS, whichever is earlier. Regulation 18(1) counts any withdrawal already made under the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015 towards the limit of three. Regulation 18(3) permits withdrawal only for the higher education of children including a legally adopted child, the marriage of such children, the purchase or construction of a house or flat where the subscriber does not already own one other than ancestral property, the treatment of illness requiring hospitalisation of the subscriber, spouse, children or dependent parents, medical and incidental expenses arising from disability or incapacitation, and skill development or reskilling. Where the subscriber is ill, a family member may submit the request through the nodal office.

Every partial withdrawal reduces the individual corpus without reducing the benchmark, because regulation 12(4)(i) excludes partial withdrawals from the benchmark computation. Regulation 18(5) accordingly allows the subscriber to replenish the value of the withdrawal before the date of retirement, and a subscriber who does not replenish it takes a proportionately reduced payout for life.

Investment choice under the Unified Pension Scheme is narrower than under NPS. Regulation 11(4) offers a subscriber who declines the default pattern exactly three alternatives: 100% in government securities under Scheme G, the Conservative Life Cycle Fund with equity capped at 25%, or the Moderate Life Cycle Fund with equity capped at 50%. A subscriber who exercises no choice is deemed to have opted for the default pattern. The pension fund may be changed once in a financial year and the investment choice twice in a financial year. Because the benchmark corpus is computed on the default pattern, any of these three choices moves the individual corpus away from the benchmark in one direction or the other.

Voluntary retirement and retirement under FR 56(j)

Voluntary retirement carries a 25-year threshold under the Unified Pension Scheme and a deferred start date. Regulation 13(1)(c) makes UPS benefits available on voluntary retirement only after a minimum qualifying service period of 25 years, and then only from the date the employee would have superannuated had service continued to superannuation. An employee taking voluntary retirement at 52 after 27 years of service therefore receives the lump sum at once but waits until age 60 for the first monthly payout, and regulation 17 pays dearness relief only from the date the admissible payout commences, so nothing accrues in the interval.

Retirement under Fundamental Rule 56(j) is treated as a full exit, with one condition attached throughout the regulations: the retirement must not be a penalty under the CCS (CCA) Rules, 1965. Regulation 13(1)(b) makes the benefits available from the date of such retirement, and the same qualification is repeated in the lump sum, the final withdrawal, the surplus and the corpus-transfer provisions. Superannuation itself requires only 10 years of qualifying service under regulation 13(1)(a), the same threshold that produces the Rs. 10,000 minimum guaranteed payout.

Death in service, invalidation and disablement

An employee covered by the Unified Pension Scheme chooses in advance which regime governs a death or an invalidation during service. Rule 10 of the CCS (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, given effect by DoPPW Office Memorandum No. 57/01/2025-P&PW(B)/UPS/10498 dated 18 June 2025, allows the subscriber to opt in Form 1, with family details in Form 2, between benefits under the Unified Pension Scheme and benefits under the CCS (Pension) Rules, 2021 or the CCS (Extraordinary Pension) Rules, 2023. The option is exercised at the time of joining or migration and may be revised any number of times before retirement by notifying the Head of Office. This is the same structure that governs death in service under plain NPS, where the choice belongs to the employee rather than to the family.

Rule 19 of the 2025 Rules governs the entitlement on death, and DoPPW Office Memorandum No. 57/03/2022-P&PW(B)/8361(7) dated 29 October 2025 sets out how it is worked. Where the subscriber opted for, or fell by default into, the CCS (Pension) Rules or the CCS (Extraordinary Pension) Rules, the Head of Office proceeds under those Rules, and under the CCS (Extraordinary Pension) Rules, 2023 where the death is attributable to government service. In that case the government contribution and the returns on it are transferred back to the government account and the balance of the individual corpus is paid as a lump sum to the legally wedded spouse as on the date of death, or to the legal heirs where there is no such spouse. Where the option was for Unified Pension Scheme benefits, they are granted under the PFRDA Regulations of 19 March 2025. Where an option for the Pension Rules route becomes infructuous because no family member is eligible for family pension under those Rules, it is treated as invalid and UPS benefits are granted instead.

Invalidation is governed by rule 17 of the 2025 Rules and by DoPPW Office Memorandum No. 57/03/2022-P&PW(B)/8361(8), also dated 29 October 2025, in cases where section 20 of the Rights of Persons with Disabilities Act, 2016 does not apply. The subscriber, or the spouse or a family member where the subscriber is incapacitated, applies to the Head of Department; the Head of Office must approach the specified medical authority within 15 days and the examination should follow within 30 days of that request, with a woman doctor on the board where a woman is examined, and the findings recorded in Format-1. A person found fit for lighter duties is to be placed on a lower post if willing, and invalidation benefits follow only where no such post exists. The same option under rule 10 decides the regime: on the Pension Rules route the individual corpus is closed, the government share and its returns revert to the government account, and the balance is paid to the subscriber as a lump sum.

Family payout on the death of a pensioner

The legally wedded spouse receives 60% of the admissible payout for life. Regulation 16(1) of the PFRDA Regulations of 19 March 2025 fixes the family payout at 60% of the amount of the admissible payout drawn by the subscriber immediately before the death, and regulation 17 pays dearness relief on it at the rates the central government declares. The base is the admissible payout, not the assured payout, so a final withdrawal or an unreplenished corpus shortfall that reduced the pensioner’s own payout reduces the family payout in the same proportion.

Where a past retiree who had opted for the Unified Pension Scheme dies, regulation 16(2) gives the spouse the difference between 60% of the admissible payout and 60% of the representative annuity amount, together with the lump sum that had become payable to the deceased employee, the monthly top-up due from superannuation until the death, the applicable dearness relief, and simple interest at Public Provident Fund rates on the arrears. No interest is payable for a period of delay where the option form was submitted beyond the stipulated time.

Resignation, removal and dismissal

Resignation, or removal or dismissal as a penalty, ends the Unified Pension Scheme entitlement. Regulation 13(2) of the PFRDA Regulations of 19 March 2025 provides that the option ceases to apply to a subscriber who has been removed or dismissed from service or who has resigned, notwithstanding enrolment. Paragraph 2(ii) of the Department of Financial Services notification F. No. FX-1/3/2024-PR dated 24 January 2025 states the same exclusion at the level of the scheme itself.

What the subscriber actually receives is settled by rule 15 of the CCS (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, which governs the treatment on resignation, and by rule 16 on absorption in an autonomous body or public sector undertaking. The one-time switch back to NPS is available at the time of resignation, and at the time of compulsory retirement where that retirement is not imposed as a penalty, but it is barred where the employee is removed, dismissed, or compulsorily retired as a penalty.

Gratuity under the Unified Pension Scheme

Retirement gratuity and death gratuity are payable to Unified Pension Scheme subscribers under the CCS (Payment of Gratuity under NPS) Rules, 2021, and they are separate from the regulation 14 lump sum. Rule 22 of those Rules carries the death gratuity, at twice emoluments for qualifying service below one year, six times for one year to under five years, 12 times for five years to under 11 years, 20 times for 11 years to under 20 years, and half of emoluments for each completed six-monthly period beyond 20 years subject to a ceiling of 33 times emoluments. The overall ceiling is Rs. 25 lakh.

The death gratuity under rule 22 is also payable where a subscriber is discharged from service on invalidation or disablement and takes benefits under the Unified Pension Scheme, per DoPPW Office Memorandum No. 57/03/2022-P&PW(B)/8361(8) dated 29 October 2025. The extension of gratuity to UPS subscribers was one of the changes the Department of Financial Services cited when extending the option window to 30 November 2025. For the wider rules, see gratuity for central government employees.

Past retirees and the monthly top-up

An employee who superannuated or retired on or before 31 March 2025 does not receive a fresh assured pension under the Unified Pension Scheme; the entitlement is a monthly top-up over the NPS annuity already being drawn. Regulation 22(3) of the PFRDA Regulations of 19 March 2025 computes it as the admissible payout plus dearness relief on it, less a representative annuity amount, and regulation 22(4) states the formula:

Monthly top-up = (Admissible Payout + Dearness Relief on Admissible Payout) - Representative Annuity amount

The representative annuity amount is the individual corpus, multiplied by (1 minus the final withdrawal percentage), multiplied by the representative annuity rate divided by 1,200. PFRDA declares the representative annuity rates, and the rates for January 2014 to March 2025 are set out in Schedule VI to the Regulations. Where the individual corpus exceeds the benchmark corpus, the individual corpus is taken as equal to the benchmark. Dearness relief for this cohort applies only from 1 January 2016 at 7th Pay Commission rates.

Three further amounts are payable to a past retiree under regulation 22(1): the lump sum, the dearness relief, and simple interest at Public Provident Fund rates on the arrears from the month after superannuation up to the month preceding the submission of the claim forms, with no interest for delay beyond the last date for submitting the option. Regulation 19(4) exempts this cohort from the transfer of the individual corpus to the pool corpus, since benefits are paid from the pool in any case, and regulation 22(5) allows a past retiree who wants the full assured payout rather than a top-up to replenish the shortfall up to the benchmark value at the net asset value on the date of exercising the option. In a written reply to Lok Sabha Unstarred Question No. 218 on 20 July 2026, the Ministry of Finance stated that 25,756 retired subscribers were eligible for these additional benefits, that 12,258 claims had been received as on 9 July 2026, and that 9,823 had been processed for payment.

Tax treatment

The Unified Pension Scheme carries the same tax treatment as NPS, and since 21 August 2025 it has statutory backing rather than an administrative assurance. The Central Board of Direct Taxes, by Office Memorandum dated 2 July 2025, applied Sections 80CCD(1), 80CCD(1B), 80CCD(2), 80CCD(3) and 80CCD(4) of the Income-tax Act, 1961, and the exemptions in Sections 10(12A) and 10(12B), to the Unified Pension Scheme, on the footing that it is an option under NPS.

The Taxation Laws (Amendment) Act, 2025, Act No. 29 of 2025, which received the President’s assent on 21 August 2025, then wrote the treatment into the statute. Section 10(12AA) exempts the amount received by a UPS subscriber at superannuation, voluntary retirement, or FR 56(j) retirement that is not a penalty, to the extent it does not exceed 60% of the individual corpus as specified in notification F. No. FX-1/3/2024-PR dated 24 January 2025. Section 10(12AB) exempts the lump sum payable under clause (vi) of paragraph 2 of that notification, which is the regulation 14 service-linked lump sum. Section 80CCD(3A) provides that amounts received on retirement from the Unified Pension Scheme are taxable in the year of receipt, and that the transfer of the individual corpus to the pool corpus is not a receipt and is therefore not taxed in the year the transfer is made. That last provision is load-bearing: without it, the regulation 19(3) transfer of the corpus to the pool would have been a taxable event at the moment of retirement.

The monthly payout itself is taxable as pension income in the hands of the recipient, in the same way as any other pension. An employee choosing between NPS and the Unified Pension Scheme therefore faces no tax penalty on either side of the choice. For the wider position on salary and the choice of regime, see income tax for government employees and NPS tax benefits.

Switching back to NPS

The switch from the Unified Pension Scheme back to NPS is one-time, one-way, and available only at fixed points. The CCS (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025 allow it within 12 months before the date of superannuation, three months before the deemed date of voluntary retirement, or at the time of resignation or of compulsory retirement that is not imposed as a penalty. It is not available to an employee who is removed, dismissed, or compulsorily retired as a penalty. On the switch, the government contribution to the individual corpus reverts to the NPS rate of 14% for future contributions, and NPS provisions govern the exit.

The move in the other direction is closed. The window for an NPS subscriber to opt into the Unified Pension Scheme ended on 30 November 2025 for serving employees and past retirees, and a subscriber who switches back to NPS cannot return. New recruits joining central government service retain the choice at the time of joining.

Dearness relief

Dearness relief is payable on the Unified Pension Scheme payout at the rates the central government declares for pensioners, currently 60% with effect from 1 January 2026 under Department of Expenditure Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026. Regulation 17 of the PFRDA Regulations of 19 March 2025 applies it to the admissible payout and to the family payout alike, on the same basis as the dearness allowance of serving employees, so the payout keeps pace with the index after retirement.

Regulation 17 attaches one condition that has practical consequences: dearness relief is payable only when the admissible payout commences. A voluntary retiree whose payout begins at the notional date of superannuation draws no dearness relief in the intervening years, and the payout when it starts is computed on the average basic pay of the last 12 months actually served, not on any later revision. For the general rules see dearness relief.

Comparison with NPS and the Old Pension Scheme

The three schemes differ on who bears the investment risk, and every other difference follows from that. The Old Pension Scheme placed it entirely on the government, NPS places it entirely on the employee, and the Unified Pension Scheme places it on the pool corpus subject to the employee keeping pace with the benchmark.

The Unified Pension Scheme is closer to the Old Pension Scheme in what it promises than in how it delivers it. The base is the average of the last 12 months rather than the last drawn pay, which costs an employee who received an increment or a promotion in the final year. There is no restoration of a commuted portion, so a final withdrawal is a permanent reduction rather than a 15-year one. The assurance is conditional on the individual corpus keeping pace with the benchmark. Against that, it pays dearness relief where an NPS annuity does not, which is the single largest long-run difference between UPS and NPS for a pensioner living 20 or more years after retirement.

The choice, for the employees who had it, turned on horizon and on risk appetite. An employee close to retirement, or one who valued a defined family payout with dearness relief, gained from the assurance. A younger employee willing to carry market risk kept the higher 14% individual-corpus contribution and the whole of any upside under NPS. The Unified Pension Scheme does not restore the Old Pension Scheme, which the central government has declined to do; see NPS vs OPS vs UPS for the comparison in full.

Uptake since 1 April 2025

The Unified Pension Scheme has been taken up by a small minority of those eligible. 1,22,123 central government employees, new recruits and past retirees had opted as on the closing date of 30 November 2025, against roughly 24 lakh NPS-covered central government employees. The number of subscribers stood at 1,18,195 as on 19 July 2026, in a written reply by the Finance Minister in the Lok Sabha, a decline of about 3,900 over the period in which the one-time switch back to NPS has been available.

The trajectory during the option window explains the extensions. 31,555 employees had opted as on 20 July 2025, roughly three months into the original window, and about 1 lakh by the first extended deadline of 30 September 2025. The Department of Financial Services cited the changes announced in the interim on the switch facility, on resignation benefits, on gratuity and on tax exemptions, together with requests for more time, when it extended the date to 30 November 2025.

Bearing on the 8th Central Pay Commission

The 8th Central Pay Commission, constituted by Ministry of Finance, Department of Expenditure Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025, is the first pay commission to sit after the Unified Pension Scheme came into force, and its terms of reference require it to examine the pension framework in the context of both NPS and the Unified Pension Scheme. A pay revision reaches a UPS subscriber through two channels at once: it raises the basic pay on which the 10% contributions are computed, and it raises the average of the last 12 months’ basic pay on which the assured payout of a subsequent retiree is calculated.

Nothing in the terms of reference commits the Commission to change the 10%, 14% or 18.5% contribution rates, and no figure for any of them should be treated as settled before the Commission reports. Until then the current pay matrix drives both the contributions and the assured-payout base.

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External references

• Unified Pension Scheme (PFRDA)
• Department of Financial Services: schemes and services
• PFRDA regulatory framework
• Department of Pension and Pensioners’ Welfare
• NPS Trust
• Income Tax Department

References

1. Ministry of Finance, Department of Financial Services, notification F. No. FX-1/3/2024-PR, dated 24 January 2025, introducing the Unified Pension Scheme as an option under the National Pension System, in partial modification of Department of Economic Affairs notification F. No. 5/7/2003-ECB&PR dated 22 December 2003.
2. PFRDA (Operationalisation of Unified Pension Scheme under National Pension System) Regulations, 2025, notified 19 March 2025: regulation 6 (individual corpus), regulation 7 (pool corpus), regulation 11 (investment of individual corpus, surplus and shortfall), regulation 12 (benchmark corpus), regulation 13 (eligibility and qualifying service), regulation 14 (lumpsum payment), regulation 15 (assured, minimum, proportionate and admissible payout, and final withdrawal), regulation 16 (family payout), regulation 17 (dearness relief), regulation 18 (partial withdrawal), regulation 19 (payments and transfer to the pool corpus), and regulation 22 (benefits to employees who retired on or before 31 March 2025).
3. PFRDA gazette notification No. PFRDA-16/07/0001/2025-SUP-CG dated 23 December 2025, amending the Operationalisation Regulations, 2025; circulated to railway establishments by Railway Board RBE No. 20/2026 dated 13 March 2026.
4. Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, notified as G.S.R. 599(E) dated 2 September 2025 by the Department of Pension and Pensioners’ Welfare: rule 10 (option), rule 13 (voluntary retirement), rule 15 (resignation), rule 17 (invalidation), rule 19 (death).
5. Department of Pension and Pensioners’ Welfare Office Memorandum No. 57/01/2025-P&PW(B)/UPS/10498 dated 18 June 2025, on the option to avail benefits under the CCS (Pension) Rules, 2021 or the CCS (Extraordinary Pension) Rules, 2023 on death or disablement in service.
6. Department of Pension and Pensioners’ Welfare Office Memorandum No. 57/03/2022-P&PW(B)/8361(7) dated 29 October 2025 (entitlement of the family on death) and Office Memorandum No. 57/03/2022-P&PW(B)/8361(8) dated 29 October 2025 (entitlement on discharge on account of invalidation).
7. Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, rule 22 (death gratuity), extended to Unified Pension Scheme subscribers.
8. Central Board of Direct Taxes Office Memorandum dated 2 July 2025, applying Sections 80CCD(1), 80CCD(1B), 80CCD(2), 80CCD(3), 80CCD(4), 10(12A) and 10(12B) of the Income-tax Act, 1961 to the Unified Pension Scheme.
9. Taxation Laws (Amendment) Act, 2025 (Act No. 29 of 2025), assented to on 21 August 2025, inserting Sections 10(12AA), 10(12AB) and 80CCD(3A) of the Income-tax Act, 1961.
10. Ministry of Finance, Department of Financial Services order File No. 11/14/2025-PR dated 30 September 2025, extending the date for exercising the Unified Pension Scheme option to 30 November 2025.
11. Lok Sabha Unstarred Question No. 218, answered 20 July 2026, on Unified Pension Scheme claims of past retirees and on the extension of benefits to other sectors; and the written reply of the Minister of Finance on subscriber numbers as on 19 July 2026.
12. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026, dearness allowance and dearness relief at 60% with effect from 1 January 2026.
13. Ministry of Finance, Department of Expenditure, Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025, constituting the 8th Central Pay Commission.