Unified Pension Scheme (UPS) and Investment Strategy

The finance ministry is evaluating global best practices and insights from the Employees’ Provident Fund Organisation (EPFO) as they finalize the investment strategy for the government's contribution under the Unified Pension Scheme (UPS), effective from April 1.

Investment Strategy

• Formation of an investment committee is planned, with a strategy finalization expected in three to four months.
• EPFO investment patterns allow 5-15% of fresh accretions in equities via Exchange-Traded Funds (ETFs).
• Comparative international examples: 
  • Canada Pension Plan (CPP): 40-50% in equities.
  • Japan’s Government Pension Investment Fund: 25% in domestic and international equities.

Unified Pension Scheme (UPS) Details

• Approved by the central government in August last year.
• Provides a guaranteed pension equal to 50% of the average basic pay from the last 12 months before retirement.
• Government contribution increased from 14% to 18.5% of basic pay and dearness allowance; employee contribution remains at 10%.
• Potential beneficiaries include over 2.3 million central government employees.
• Employees must choose between NPS and UPS by June 30; the decision is final.
• Pension provisions also apply to past NPS retirees.

Financial Implications

• Estimated expenditure for arrears: ₹800 crore.
• Annual cost increase: Approximately ₹6,250 crore in the first year.

Investment Decisions

• Current default investment pattern involves a mix of equities and bonds.
• If decided, 50% could be allocated to equities post-evaluation.

Differences Between UPS and OPS

• Minimum qualifying service: 25 years in UPS vs. 20 years in OPS.
• Average pay for pension calculation: 12 months in UPS vs. 10 months in OPS.
• Pension commencement: Begins at age 60 in UPS; immediately upon retirement in OPS.