Central govt employees can now switch from UPS to NPS: One-time, one-way facility floated

The Department of Financial Services (DFS) has introduced a one-time, one-way switch facility allowing eligible Central Government employees to migrate from the Unified Pension Scheme (UPS) to the National Pension System (NPS), under specified conditions. This initiative, announced via Office Memorandum No. 1/3/2024-PR dated 25th August 2025, aims to provide employees with informed choice in planning their post-retirement financial security.

The Unified Pension Scheme (UPS) was initially notified by the Ministry of Finance, Government of India, under Notification No. F. No. FX-1/3/2024-PR on 24th January 2025. Following this, the DFS clarified the procedures for a one-way switch to NPS, allowing employees who had opted for UPS to transition to NPS if they believe the system better suits their retirement planning needs.

Under the memorandum, eligible employees under UPS can switch to NPS only once, and cannot revert to UPS after making the switch. The switch must be exercised at least one year before superannuation or three months before voluntary retirement, whichever is applicable.

The facility is not applicable in cases of removal, dismissal, compulsory retirement as a penalty, or where disciplinary proceedings are ongoing or contemplated. Employees who do not opt for the switch within the stipulated period will continue under UPS by default. Those who remain in NPS cannot opt for UPS after 30th September 2025, making the deadline crucial for employees evaluating their pension options.

UPS vs NPS

UPS is a guaranteed-payout retirement plan exclusively for Central Government employees under NPS, offering a fixed pension based on years of service. Employees with at least 25 years of service can receive 50% of their average basic salary in the last year before retirement. Even those with a minimum of 10 years’ service are assured a pension of Rs 10,000 per month. In the event of the pensioner’s death, the family receives 60% of the last pension drawn. Pensions are adjusted for inflation, ensuring the income retains its real value over time.

The scheme was designed to address the uncertainty of NPS, which offers market-linked returns without guaranteed payouts. Under UPS, employees contribute 10% of their basic pay plus Dearness Allowance, matched by the government, with an additional 8.5% contribution to a common pool to support assured payouts—a higher contribution than the 14% provided under NPS.

Despite these advantages, uptake of UPS has been limited. An RTI response indicated that by 20th July 2025, only 30,989 employees had opted for UPS out of roughly 23 lakh NPS subscribers, around 1.35%. Experts attribute this to unclear tax rules, limited investment flexibility, smaller lump-sum payouts, and the risk of losing benefits if employees leave before completing 10 years. Younger employees often prefer NPS due to the potential for higher long-term, market-linked returns.

While UPS ensures financial security, employees remain cautious due to concerns around investment flexibility, taxation, and exit conditions. The one-time, one-way switch to NPS allows those who initially opted for UPS to reconsider their retirement strategy, balancing guaranteed income with market-linked growth. Employees have to make timely decisions before the 30th September 2025 deadline to avail themselves of this facility.