Central government employees who have chosen the Unified Pension Scheme (UPS) will now receive gratuity benefits similar to those offered under the National Pension System (NPS). The Department of Pension and Pensioners’ Welfare (DoPPW) confirmed this in an official circular.
Employees retiring or dying in service will be entitled to gratuity payments calculated as one-fourth of their salary for every 6 months of completed service. The maximum payout is capped at 16.5 times the salary or ₹25 lakh, whichever is lower.
Besides gratuity, UPS subscribers will also get an additional lump sum payment. This is equal to 10% of the salary and dearness allowance for each completed 6 months of service, further boosting retirement savings. The combination of gratuity and lump sum payments will provide a stronger financial cushion for retirees.
Government employees in UPS still have the option to switch to the Old Pension Scheme (OPS) in certain cases, such as death, invalidation, or disablement during service. To give employees more time to decide, the Finance Ministry has extended the deadline to switch to UPS until September 30, 2025. This extension applies to active NPS subscribers eligible for UPS, retired employees, and the spouses of deceased retirees.
The UPS ensures a guaranteed pension payout. Employees who serve at least 25 years will get 50% of their average pay from the last 12 months as pension, with regular increases to adjust for inflation. While the government contributes 18.5% of the salary into UPS (higher than NPS), only 10% goes directly into the employee’s pension account. This higher contribution demonstrates the government’s focus on securing employees’ post-retirement finances.
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Both UPS and NPS allow employees to withdraw up to 60% of their total corpus when they retire. However, clarity about whether UPS lump sum withdrawals will get the same tax exemptions as NPS withdrawals is still awaited. Unlike NPS, which depends on the final corpus and annuity rates, UPS guarantees a fixed pension.
With the new gratuity provisions, UPS now offers a more comprehensive retirement safety net, aligning it closer to NPS. Employees must evaluate their financial goals, retirement plans, and the guaranteed payouts of UPS before making a choice. The deadline extension gives them more time to make an informed decision that best secures their future.
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Published on: Jul 4, 2025, 8:34 AM IST
Kusum Kumari
Kusum Kumari is a Content Writer with 4 years of experience in simplifying financial market concepts. Currently crafting insightful content at Angel One, She specialise in breaking down complex topics into easy-to-understand pieces, blending expertise in market fundamentals and technical analysis.
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