Which is better, NPS or UPS?

The UPS ensures a guaranteed pension amount, whereas the pension under NPS is based on returns from market-linked investment schemes. While UPS is ideal for employees seeking risk-free, assured pensions, NPS might suit those open to market-based investments and the potential for higher returns.

What is the difference between OPS and UPS pensions?

Under OPS, employees receive 50% of their last drawn salary as a pension. Similarly, UPS also provides 50% of the last drawn salary, but only to employees with 25 years of service. For retirees with 10 to 25 years of service, UPS offers a proportionate pension. Unlike OPS, where employees do not contribute, UPS requires employees to contribute 10% of their basic salary, with the government contributing 18.5%.

Is UPS scheme available to private employees?

No, the UPS scheme is currently limited to government employees and does not include private-sector employees.

Does UPS offer a lump-sum pension?

Yes, retired employees receive a lump sum payment at superannuation in addition to their gratuity. This amount equals one-tenth of their monthly emoluments (pay + DA) for every six months of completed service. Importantly, this payment does not affect the assured pension amount.

UPS-Unified Pension Scheme

The Unified Pension Scheme (UPS) is a new pension scheme introduced by the Indian government for its employees. It provides a guaranteed pension of 50% of the average basic pay drawn over the last 12 months for employees with at least 25 years of service. The government contributes 18.5% to the scheme, and employees contribute 10%.

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Disclaimer: ##Rs 60,000 are the monthly pension amounts at the assumed rate of return of 8% p.a. and 4% p.a. for unit linked insurance plans. This is an illustrative example and the returns are not guaranteed & dependent on the policy term and premium term availed along with the other variable factors. The market linked return of 60K per month is for an 18 year old investing 6k per month for 20 years in a whole life policy having policy term 82 years in which Systematic partial withdrawals start at the age of 65 years at 5% rate of withdrawal per year. The investment risk in the policy is borne by the policyholder. All Plans listed here are of insurance companies’ funds. *Tax benefits and savings are subject to changes in tax laws. All Plans listed here are of insurance companies’ funds. Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

What is the Unified Pension Scheme (UPS)?

The Unified Pension Scheme (UPS) is a new pension plan introduced by the Indian government for its employees, effective from April 2025. This scheme is a significant departure from the existing National Pension Scheme (NPS) and offers a fixed pension amount to employees after a minimum of 25 years of service. UPS ensures retirees receive a guaranteed and predetermined sum regularly after retirement.

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Details of UPS-Unified Pension Scheme

Announced Date	24 August 2024
Implementation Date	1 April 2025
Beneficiaries	Central Government Employees
Employee Contribution	10% of basic salary + dearness allowance
Employer Contribution	18.5% of basic salary + dearness allowance
Benefits	Employees with a minimum of 25 years of service are entitled to a pension amounting to 50% of their average basic pay from the last 12 months before retirement. A fixed pension of ₹10,000 per month is provided to employees who retire after completing at least 10 years of service.

When Will the UPS- Unified Pension Scheme be Implemented?

The Unified Pension Scheme (UPS) will be implemented April 1, 2025. This means that all Central government employees who join the service on or after this date will automatically be enrolled in the UPS.

Eligibility Criteria for the UPS-Unified Pension Scheme

The eligibility criteria for the Unified Pension Scheme (UPS) are:

Fixed Pension Amount: Government employees who have completed at least 10 years of service qualify for a fixed pension amount.
Percentage-Based Pension: Those with 25 or more years of service are eligible to receive a percentage of their average basic pay as a pension.
NPS Coverage and VRS Opt-ins: Employees covered under the National Pension System (NPS) and those opting for the Voluntary Retirement Scheme (VRS) under NPS are also eligible for UPS.

Minimum Pension Amount in UPS Scheme

The UPS offers a minimum monthly pension of ₹10,000 for government employees who retire with a service tenure of at least 10 years.

Features of the Unified Pension Scheme (UPS)

Below are the features of the Unified Pension Scheme (UPS):

Fixed Pension: Employees will receive a fixed pension of 50% of their average basic pay drawn over the last 12 months before superannuation, provided they have completed a minimum of 25 years of service.
Pro-rata Pension: For those with less than 25 years of service, the pension will be proportionate to the number of years served, with a minimum of 10 years required for eligibility.
Family Support: In case of the employee's demise, their family members will be entitled to a family pension of 60% of the employee's pension immediately before their death.
Safety Net: Employees who complete a minimum of 10 years of service will be guaranteed a minimum pension of Rs. 10,000 per month upon superannuation.
Purchasing Power Protection: To protect the pension from inflation, the assured pension, assured family pension, and assured minimum pension will be indexed to the All India Consumer Price Index for Industrial Workers (AICPI-IW).
Cost of Living Adjustment: Employees will receive dearness relief based on the AICPI-IW, similar to the benefits provided to other government employees.
Additional Benefit: In addition to gratuity, employees will be eligible for a lump sum payment at superannuation. This payment will be calculated as 1/10th of their monthly emoluments (pay + DA) for every six months of service completed.

How is the Pension Calculated Under the Unified Pension Scheme (UPS)?

The Unified Pension Scheme (UPS) offers a straightforward method for calculating the pension amount.

Pension Calculation Formula:

Base Pension: 50% of the average basic pay drawn in the last 12 months before retirement.
Dearness Allowance (DA): The base pension will be adjusted for inflation through regular updates in the dearness allowance.

Returns on UPS-Unified Pension Scheme

The Unified Pension Scheme (UPS) offers guaranteed pension benefits to government employees, ensuring financial stability post-retirement. The scheme involves contributions from both employers and employees:

Employer Contributions: 18.5% of the employee's basic salary and dearness allowance.
Employee Contributions: 10% of the basic salary and dearness allowance.

Pension Returns:

Employees retiring after 25 years of service receive 50% of their average basic pay from the last 12 months as a pension.
Employees completing a minimum of 10 years of service are entitled to a fixed monthly pension of ₹10,000 upon retirement.

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Unified Pension Scheme (UPS) vs the National Pension Scheme (NPS)

Here's a comparison of the key differences between the two:

Feature	Unified Pension Scheme (UPS)	National Pension Scheme (NPS)
Eligibility	Central government employees who joined service after January 1, 2004	Any Indian citizen between the ages of 18 and 70
Pension Type	Defined benefit scheme (guaranteed pension)	Defined contribution scheme (pension based on contributions and market performance)
Pension Amount	50% of the last drawn basic salary	Depends on the accumulated corpus and chosen annuity plan at retirement
Government Contribution	18.5% of the basic salary	14% of the basic salary (matched with employee's contribution)
Family Pension	60% of the employee's pension	Depends on the accumulated corpus and chosen annuity plan at retirement
Risk	Lower risk due to guaranteed pension	Higher risk due to market-linked returns
Portability	Not applicable (restricted to central government employees)	Portable, allowing account transfer across employers and locations
Tax Benefits	Not yet specified	Tax benefits under Section 80CCD of the Income Tax Act

Can You Switch from the Unified Pension Scheme (UPS) to the National Pension Scheme (NPS)?

You cannot switch from the Unified Pension Scheme (UPS) to the National Pension Scheme (NPS) once you have chosen the UPS. The government has clarified that the choice between UPS and NPS is final. While existing NPS/VRS employees and future employees have the option to join UPS, once they make their choice, they cannot change their mind.

Conclusion

The Unified Pension Scheme (UPS) offers a significant improvement over previous pension schemes, providing government employees with a guaranteed pension, family pension, and inflation-indexed benefits. While it may involve some trade-offs in terms of potential returns compared to market-linked options, UPS offers a secure and reliable retirement income.

FAQs

Which is better, NPS or UPS?

The UPS ensures a guaranteed pension amount, whereas the pension under NPS is based on returns from market-linked investment schemes. While UPS is ideal for employees seeking risk-free, assured pensions, NPS might suit those open to market-based investments and the potential for higher returns.
What is the difference between OPS and UPS pensions?

Under OPS, employees receive 50% of their last drawn salary as a pension. Similarly, UPS also provides 50% of the last drawn salary, but only to employees with 25 years of service. For retirees with 10 to 25 years of service, UPS offers a proportionate pension. Unlike OPS, where employees do not contribute, UPS requires employees to contribute 10% of their basic salary, with the government contributing 18.5%.
Is UPS scheme available to private employees?

No, the UPS scheme is currently limited to government employees and does not include private-sector employees.
Does UPS offer a lump-sum pension?

Yes, retired employees receive a lump sum payment at superannuation in addition to their gratuity. This amount equals one-tenth of their monthly emoluments (pay + DA) for every six months of completed service. Importantly, this payment does not affect the assured pension amount.

˜Top 5 plans based on annualized premium, for bookings made in the first 6 months of FY 24-25. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.