Unified Pension Scheme
Also written UPS · Unified Pension Scheme (UPS)
An option under the NPS for Central Government employees, effective 1 April 2025, that adds an assured payout of 50 percent of the last 12 months' average basic pay after 25 years of qualifying service.
In plain language
The NPS is a defined contribution scheme: you get what the market gave you. The old pension it replaced was defined benefit: you got a formula, regardless of the market.
The Unified Pension Scheme is an option under the NPS that puts a defined benefit back on top of the NPS plumbing. The employee still has a PRAN and still contributes, but the payout is promised as a percentage of final pay rather than left to the corpus.
It is an option, it is under the NPS rather than outside it, and it is for Central Government employees already covered by the NPS.
How it works
The legal stack the paper expects you to recognise:
- Notified by the Ministry of Finance, Department of Financial Services, F. No. FX-1/3/2024-PR dated 24 January 2025
- Operationalised by the PFRDA (Operationalisation of Unified Pension Scheme under National Pension System) Regulations, 2025, notified 19 March 2025
- Service matters under the Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025
- Effective 1 April 2025
Contributions. The subscriber contributes 10 per cent of basic pay plus dearness allowance, credited to the individual PRAN. The Central Government makes a matching 10 per cent monthly contribution. Separately, an estimated 8.5 per cent of basic pay plus DA is contributed by the Central Government on an aggregate basis to a Pool Corpus — note that this third contribution is aggregate, not credited to any individual PRAN.
Assured payout.
| Qualifying service | Payout |
|---|---|
| 25 years or more | 50 per cent of the average of the last 12 months' basic pay immediately prior to superannuation, voluntary retirement or retirement |
| 10 years or more but under 25 | Proportionate payout |
| Minimum 10 years | Floor of Rs 10,000 a month |
Investment choice. UPS subscribers share the Central Government menu widened from December 2025 to six options, including Active Choice with 100 per cent in Government Securities and the four Auto Choice life-cycle funds.
A worked example
A Central Government employee retires at superannuation. Her basic pay plus DA is Rs 1,50,000 a month and the average of her last 12 months' basic pay is Rs 1,20,000.
What goes in each month:
Employee, 10% of (basic + DA) = Rs 15,000 → her PRAN
Government, matching 10% = Rs 15,000 → her PRAN
Government, est. 8.5% (aggregate) = Rs 12,750 → the Pool Corpus, not her PRAN
What comes out:
Qualifying service 25 years or more
Assured payout = 50% × 1,20,000 = Rs 60,000 a month
Where the floor bites. Take a colleague whose last-12-months average basic pay is Rs 18,000 and who has 11 years of qualifying service. Fifty per cent of Rs 18,000 is Rs 9,000, and a proportionate payout on 11 years would be lower still — but the minimum guaranteed payout of Rs 10,000 a month applies, because he has cleared the 10-year threshold. The floor is what makes the scheme meaningful at the bottom of the pay scale, and it is the figure most likely to be asked.
Note the base: basic pay, and the average of the last 12 months of it. Not basic plus DA, and not the final month.
Why NISM asks about it
Chapter 4, section 4.1.6, is devoted to the UPS and is written as a list of testable facts — the two notification dates, the three contribution rates, the 25-year and 10-year service thresholds, the 50 per cent rate and the Rs 10,000 floor. Section 4.5 adds the tax position. New scheme, dense section, heavy examination weight: expect straight recall of the percentages and at least one question distinguishing the UPS from the Old Pension Scheme and from plain NPS.
Common exam traps
- Contributions are on basic pay plus DA; the assured payout is on basic pay alone. Two different bases in the same section, and the single most likely trap.
- It is 50 per cent of the average of the last 12 months, not of the final month's pay.
- The 8.5 per cent government contribution goes to a Pool Corpus on an aggregate basis — it is not credited to the subscriber's PRAN and does not appear in the individual's corpus.
- Two service thresholds, two consequences. 25 years earns the full 50 per cent; 10 years earns a proportionate payout and access to the Rs 10,000 floor. Under 10 years, neither.
- The workbook states that a proportionate payout applies between 10 and 25 years but does not spell out the pro-rating arithmetic. Do not invent a formula in an answer that asks for a figure.
- The UPS is an option under the NPS, not a replacement for it and not a revival of the Old Pension Scheme. The subscriber keeps the PRAN and the NPS architecture.
- Tax treatment is by administrative extension, not by its own provision. The workbook cites the CBDT Office Memorandum dated 2 July 2025 under which sections 80CCD(1), 80CCD(1B), 80CCD(2), 80CCD(3), 80CCD(4), 10(12A) and 10(12B) apply mutatis mutandis, and notes that any deviation in payout or contribution structure would need a legislative amendment.
Check yourself
1.Who defines the eligibility norms of the intermediaries in the NPS?
- a)Ministry of Finance
- b)SEBI
- c)PFRDA
- d)NPS Trust
Show the answer
Answer: (c) PFRDA
This is the workbook sample question. The PFRDA regulates NPS and the pension schemes not regulated by any other enactment, DEFINES THE ELIGIBILITY NORMS FOR INTERMEDIARIES, REGISTERS AND REGULATES THE INTERMEDIARIES, and establishes the mechanism for protecting the interests of the subscribers.
⚠️ The NPS Trust is the tempting wrong answer, because it genuinely does monitor and evaluate the functioning of all the intermediaries. But monitoring is not norm-setting — the Trust supervises against standards PFRDA writes.
SEBI appears in the architecture only because the custodian must be SEBI-registered; it does not set NPS intermediary norms. The Ministry of Finance notifies schemes such as the UPS but does not define intermediary eligibility.
2.A subscriber to the NPS receives the pension for income in retirement from:
- a)An annuity purchased on retirement
- b)The corporate employer
- c)PFRDA
- d)The government
Show the answer
Answer: (a) An annuity purchased on retirement
This is the workbook sample question. At retirement the subscriber draws the corpus so created TO BUY AN ANNUITY THAT WILL PROVIDE REGULAR INCOME IN RETIREMENT.
The annuity is issued by an Annuity Service Provider — one of 15 IRDAI-regulated life insurance companies empanelled by PFRDA. PFRDA regulates but pays no pension; the employer contributes during service but pays nothing after; the government contributes 14% for its own employees but does not pay the pension.
⚠️ Two places where a guarantee does come from the government are worth keeping separate in your mind: in the Atal Pension Yojana, the pension is guaranteed by the Government of India; and the Unified Pension Scheme carries an assured payout of 50% of the last 12 months' average basic pay. Neither is how a standard NPS pension arises.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Active ChoiceThe NPS investment option under which the subscriber sets the split across the E, C, G and A asset classes personally, subject to a 75 percent cap on equity and 5 percent on alternatives.
- National Pension SystemA PFRDA-regulated, defined-contribution retirement scheme in which the subscriber builds a market-linked corpus and must convert part of it into an annuity at exit; there is no guaranteed return.
- Permanent Retirement Account NumberThe unique account number issued when an NPS account is opened; it stays with the subscriber for life and across employers, which is what makes NPS portable in a way EPF historically was not.
- AnnuityAn insurance contract where a corpus is built as a lump sum or in instalments, in return for which the insurer makes periodic payments to the purchaser.