From April 1, 2025, all central government employees (except the armed forces) will get the option to choose from two pension schemes — the National Pension System (NPS) and the Unified Pension Scheme (UPS). The NPS, which was launched in January 2004, replaced the Old Pension Scheme (OPS), and covers all departments under the central government. On the other hand, UPS is a new pension scheme recently announced by the government, which will come into effect from April 2025.
NPS vs UPS: Key differences and features
NPS is a market-based investment scheme in which the returns depend on the market condition. In contrast, UPS is a guaranteed pension scheme, which has lower risk due to government protection and the employer (government) contribution is higher than NPS.
Under UPS, the government will contribute 18.5% of the sum of basic salary and dearness allowance (DA), while the employee’s contribution will be 10%, which is the same as NPS.
Pension guarantee:
There is no fixed pension guarantee in NPS, while UPS offers a guaranteed pension based on a percentage of the average basic salary.
Investment options:
Under NPS, one gets the option to invest in equity, debt and other market-linked funds, while UPS invests mainly in government bonds and safe instruments.
Employer contribution:
The government’s contribution in UPS is higher than NPS, which provides a stable pension after retirement.
Risk level:
Investment in NPS is market-linked, which makes it more risky, while UPS is a low-risk scheme, as it offers a fixed pension.
Now the question is, how much investment will have to be made in both the schemes to get a monthly pension of Rs 1 lakh? Let’s understand it in detail.
UPS: How to ensure Rs 1 lakh pension after 35 years of service
Suppose a person joins a government job on April 1, 2025 at the age of 25 and retires at the age of 60, that is, he served for 35 years.
If the average basic salary of the last 12 months before retirement is Rs 2 lakh per month, then under UPS, guaranteed pension will be available at the rate of 50%, that is, Rs 1 lakh per month.
Apart from this,
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