In a significant move toward long-term pension security, the Finance Ministry is reportedly analysing global best practices in managing pension funds as well as examining how India's Employees' Provident Fund Organisation (EPFO) handles its own massive corpus.
According to a report, the government is carefully planning how to structure investment guidelines for the extra contribution fund—also known as the pool corpus, under the newly launched Unified Pension Scheme (UPS).
Launched in April 2025, the UPS aims to provide central government employees with a fixed pension upon retirement, making it a more secure alternative to the existing National Pension System (NPS), which does not guarantee pension payouts.
The UPS introduces a dual-fund structure to ensure stable pension returns:
Employees contribute 10% of their basic pay + dearness allowance.
The government matches the same contribution—10%.
Employees can choose from investment plans based on their risk appetite:
Government securities (low risk)
Balanced funds with limited equity exposure
Default schemes
The government contributes an additional 8.5% to a separate fund.
This fund is fully managed by the government.
It acts as a stabilising reserve to ensure that promised pensions are met.
Since the Unified Pension Scheme offers a fixed pension guarantee, the government bears the financial risk of ensuring steady returns over the long term.
"The rate of return must be consistent and safe to maintain the financial health of the scheme," a government source noted.
To that end, the Finance Ministry is studying how other countries manage long-term pension liabilities and what mechanisms they use for risk mitigation. It is also reviewing Employees' Provident Fund Organisation EPFO’s internal strategies on corpus allocation to gain insight into prudent asset management.
"A final decision on investment rules will be taken soon, and the idea is to adopt a model that suits India’s needs best," said a senior official.
The newly launched UPS offers greater pension security compared to the existing National Pension System (NPS).
|
Feature |
Unified Pension Scheme (UPS) |
National Pension System (NPS) |
|
Pension Type |
Fixed/Assured |
Market-linked (Not guaranteed) |
|
Govt Contribution |
18.5% (10% + 8.5%) |
14% |
|
Employee Choice |
Can stay in NPS or switch to UPS |
Default for new employees pre-UPS |
|
Switch-back Allowed? |
❌ No reversal once opted for UPS |
– |
“The Unified Pension Scheme is designed to offer more comfort to employees than NPS,” notes a government official.
Employees currently enrolled in NPS are allowed to switch to UPS, but this is a one-time decision. Once an employee transitions to the Unified Pension Scheme, they cannot revert to NPS.
"Employees need to be sure before switching. Once they move from NPS to UPS, they can’t switch back," the report mentions.
The Unified Pension Scheme (UPS) marks a significant shift in India’s pension landscape, aiming to provide central government employees with greater financial security post-retirement. By guaranteeing a fixed pension and increasing the government's contribution to 18.5%, UPS offers a more stable and attractive alternative to the market-linked National Pension System (NPS).
The Finance Ministry's move to study international pension fund management models and EPFO’s practices underscores its commitment to building a robust and sustainable investment strategy for the scheme’s pool corpus.
Since the government assumes full responsibility for maintaining the scheme’s financial health, ensuring long-term, stable returns from the corpus is critical. As final guidelines are expected soon, the UPS stands poised to become a benchmark in employee-centric pension reform.
However, employees must make an informed choice, as switching from NPS to UPS is irreversible. Overall, UPS represents a thoughtful blend of security, sustainability, and responsibility in India’s evolving pension framework.