Amid the growing demand for the old pension scheme, the central government has given a big gift to lakhs of government employees. Now, government employees will be able to switch from their Unified Pension Scheme (UPS) to the National Pension System (NPS) once. The government has clarified that this facility will be one-way. This means that once the employees move from UPS to NPS, they will not be able to come back to UPS. This decision will bring unprecedented flexibility to the employees in choosing their pension scheme.
Golden opportunity to switch from UPS to NPS
Earlier this year, the Unified Pension Scheme (UPS) was introduced as an option under NPS for employees joining the central government civil services from April 1, 2025. Existing government employees, who are already in NPS, were also given the option to join UPS. In March 2025, the Pension Fund Regulatory and Development Authority (PFRDA) issued the necessary rules for UPS. As of July 20, about 31,555 central government employees have opted for UPS. The last date for enrollment in this scheme is September 30.
Big announcement of the Finance Ministry
The Finance Ministry has said in an office memorandum that it has been decided that all central government employees who have opted for UPS will be provided a ‘one-time, one-way’ switch facility from UPS to NPS. The government said that employees taking UPS can use the switch facility at any time. This can be up to one year before their retirement date or three months before the estimated retirement date in case of voluntary retirement.
The government has also increased the benefits of retirement gratuity and death gratuity under UPS. Also, government employees opting for UPS under NPS will be eligible for the option to receive benefits under CCS (Pension) Rules, 2021, or CCS (Extraordinary Pension) Rules, 2023, in the event of death of the government employee during service or his retirement on the basis of incapacity or disability. The government has also provided tax benefits to UPS on the same basis as NPS under the Income Tax Act, 1961.
Tax savings and better returns
The National Pension System (NPS) offers several attractive benefits to employees, especially in terms of tax savings:
Currently, employees contributing to NPS get tax exemption up to 10% of salary (basic pay and DA) under section 80CCD (1), within the overall limit of ₹1.50 lakh under section 80CCE.
In addition, an additional tax exemption of up to ₹50,000 is available under section 80CCD (1B).
Under section 80CCD (2), up to 10% of salary (basic pay and DA) contributed by the employer is tax-free. If such a contribution is made by the Central Government, tax exemption up to 14% is available even after the overall limit of ₹1.50 lakh under 80CCE.
This switch facility will provide government employees more freedom and flexibility in planning their finances, thereby making their future more secure.