8th Pay Commission: The final few days of 2025 are remaining. Throughout this year, the government has made several decisions that have directly impacted central government employees. The most significant decision was the Eighth Pay Commission, and pension rules have also been changed. Let’s explore what has changed for central government employees throughout the year.
8th Pay Commission
The Central Government constituted the Eighth Pay Commission this year. Retired Supreme Court Justice Ranjana Prakash Desai has been appointed to head the Commission. The Commission will submit its final report within 18 months, while also submitting interim reports from time to time. Its recommendations are expected to become effective from January 1, 2026. These recommendations will benefit approximately 5 million central government employees and 6.9 million pensioners. Furthermore, its recommendations will impact the pay structure of state government employees.
Media reports predict that the Pay Commission’s recommendations will be based on a fitment formula, which could lead to a doubling or more of the salaries of employees. In 2025, the government approved two DA/DR increases for central government employees and pensioners. The first half saw a 2% increase, followed by a 3% increase for the second half. This allowance now represents a 58% increase in the salaries of central government employees.
What changed in NPS?
Pension fund regulator PFRDA has made several changes to the National Pension System (NPS) for government employees. Government employees can now remain in the NPS until the age of 85. However, they will be allowed to withdraw only 60 percent of their corpus upon retirement, with the remaining 40 percent set aside for purchasing an annuity. However, if a government employee leaves the NPS due to premature resignation, removal, or dismissal, 80 percent of the corpus will be used to purchase an annuity, and the remaining can be withdrawn as a lump sum.
UPS implemented
The Unified Pension Scheme (UPS) for central government employees came into effect on April 1, 2025. The deadline for opting for UPS was initially available until June 30, 2025. This deadline was later extended to September 30, 2025, and then to November 30, 2025. Under the scheme, for a minimum qualifying service of 25 years, a guaranteed payout at the rate of 50 percent of the average basic pay drawn in the last 12 months before retirement will be payable.
Switch facility for central employees
The government has provided a one-time, one-way switch facility to central government employees opting for the UPS to revert to the NPS at any time during their service, subject to certain conditions. The one-time ‘one-way switch’ facility will not be permitted in cases of suspension, dismissal, or compulsory retirement as a punishment, or in cases where disciplinary proceedings are ongoing or contemplated.
Two new investment options
The government has approved two new investment options – ‘Life Cycle’ and ‘Balanced Life Cycle’ – for central government employees under NPS and UPS. Under NPS and UPS, central government employees can now choose from multiple investment options. One is the default option, which is the ‘default pattern’ of investment as defined by the Pension Fund Regulatory and Development Authority (PFRDA) from time to time. The second option is Scheme-G, which will invest 100 percent in government securities for low-risk, assured returns.
The maximum equity allocation under the Life Cycle (LC-25) option is 25 percent, which gradually reduces from age 35 to age 55, while the maximum equity allocation under the LC-50 option is limited to 50 percent of the retirement corpus. The Balanced Life Cycle (BLC) option is a modified version of the LC50, in which the equity allocation reduces from age 45 to enable employees to invest in equities for a longer period. The maximum equity allocation under the LC75 option is 75 percent, which gradually reduces from age 35 to age 55.