From 8th Pay Commission to DA hikes: 10 changes for India's central govt employees and pensioners in 2025

 From pension reforms to a new tax regime and conveniences in NPS & UPS investment options, it brought several impactful updates. Let's rewind the year and have a look at the top 10 changes for India's central government employees and pensioners in 2025.

1) 8th CPC clarification

Over 50.14 lakh Central government employees and approximately 69 lakh pensioners are likely to benefit from the next pay revision. However, the central government has said that the implementation date and funding details will be decided later. Meanwhile, the government also confirmed that the pension is not excluded from the scope of the 8th CPC. Union Minister of State for Finance, Pankaj Chaudhary, said the 8th CPC will examine it and, based on this, he will recommend changes relating to pay, allowances, and pension for Central Government employees.

2) Dearness Allowance (DA) and Dearness Relief (DR) hikes

The government has approved a 3 per cent hike in Dearness Allowance (DA) & Dearness Relief (DR) for Central Govt employees/pensioners, raising it from 55 per cent to 58 per cent, effective July 1, 2025. This standard revision under the 7th Pay Commission is likely to be followed by another potential hike in January 2026 (possibly to 60 per cent), as the government revises DA/DR twice yearly to counter inflation, with states like Bihar, UP, and Rajasthan also announcing similar increases.

3) Unified Pension Scheme (UPS) introduced

The Unified Pension Scheme (UPS) came into effect on April 1, 2025, introducing a more structured and predictable pension system. Under UPS, employees are guaranteed a pension calculated based on their average last drawn pay, with contributions made by both employees and the government.

4) UPS–NPS one-time switch

In 2025, the government allowed a one-time, irreversible option for employees enrolled in the NPS to shift to the UPS. While subject to specific conditions, the move offers greater flexibility and choice in retirement planning

5) New tax regime

The new tax regime provides Central government employees and pensioners with income tax exemption on total earnings of up to Rs 12 lakh, including pension and interest income.

6) Life certificate for NRIs

Pensioners living overseas can now submit their life certificates without returning to India, following a new government notification that simplifies the process for submissions from abroad.

7) Life certificate requirement for family pension

Under the new regime, both parents are required to submit life certificates in order to continue receiving the enhanced rate of family pension. Earlier, there was no such requirement that resulted in unintentional overpayments even after the death of one parent. However, the updated rule ensures accurate pension disbursal, preventing overpayment.

8) NPS & UPS investment options expanded

The National Pension System (NPS) and Unified Pension Scheme (UPS) for Central Govt. employees saw expanded investment choices recently (late 2025) with PFRDA introducing two new Auto Choice options, increasing total choices to six. It extension offered more flexibility to employees, allowing Central Government employees with greater choice over the investment of their retirement funds, including options to switch from NPS to UPS for a guaranteed pension or customise market-linked growth, balancing assured income with market potential.

9) PFRDA allows up to 75% equity allocation

PFRDA allows up to 75 per cent equity allocation through options like the Life Cycle 75 (LC75) fund, which offers high equity exposure in early years, gradually reducing it as retirement nears (a "glide path"), providing more choice and potentially higher returns for younger investors in the National Pension System (NPS) and Unified Pension Scheme (UPS).

10) NPS new rules 2025

Under the new rules, which came in 2025, government employees can continue investing in NPS even after retirement, up to the age of 85. They must allocate a minimum of 40 per cent of their collected savings towards an annuity or another regular pension option at the time of exit. And, the rest can be accessed either as a one-time withdrawal or through staggered payouts, based on their preference.