Big Challenge for Government: How to Ensure Guaranteed Pension Under New Unified Pension Scheme (UPS)

New Delhi With the launch of the Unified Pension Scheme (UPS) on April 1, the central and state government employees now have the flexibility to choose between the New Pension Scheme (NPS) and the newly introduced Guaranteed Pension Scheme under UPS. However, while the option has been made available, the government is still grappling with one key question — how to ensure guaranteed pensions under the new structure.

Finance Ministry to Study Global Pension Fund Models

According to a senior official from the Finance Ministry, a detailed study of Global Pension Fund management practices is underway. This study is expected to guide the formulation of investment rules for the pool fund — a central component of the UPS. Unlike the individual fund, where employee contributions are managed similarly to NPS, the pool fund will handle additional government contributions of 8.5% meant to guarantee pension payouts post-retirement.

Key Features of Unified Pension Scheme (UPS)

• Employee Contribution: 10% of basic salary + DA

• Government Matching Contribution: 10% of basic salary + DA

• Additional Government Contribution: 8.5% (goes into pool fund for guaranteed pension)

This structure results in dual contributions — one part forming a personal fund (like NPS) and the other creating a collective pool fund used solely for guaranteed pension disbursements.

Personal Fund vs Pool Fund Management

• Personal Fund:

  • Managed similar to NPS.

  • Employee can choose investment strategies.

  • Fund remains under employee control.

• Pool Fund:

  • Funded solely by the government.

  • Meant for guaranteed pension and DA after retirement.

  • Investment control lies with the government.

The key dilemma lies in how the pool fund will be managed to ensure long-term sustainability and guaranteed returns in a volatile economic environment.

Investment Options and Future Rules

Employees choosing UPS will have the liberty to select a pension fund registered with the regulator and can opt for one of four investment strategies:

100% in Government Securities

Conservative Life Cycle Fund (up to 25% equity exposure)

Moderate Life Cycle Fund (up to 50% equity exposure)

Default Life Cycle Plan

However, once UPS is chosen, switching back to NPS won’t be allowed.

The Finance Ministry is expected to finalize investment guidelines soon to ensure the viability of the guaranteed pension framework. The model aims to blend the security of traditional pensions with the flexibility and modern features of NPS.

Conclusion

As UPS rolls out, the government faces the crucial task of building a sustainable pension model that can provide guaranteed post-retirement income without burdening future finances. The success of this scheme will depend on how effectively the pool fund is structured, invested, and managed over the coming decades.