In India, the government provides several retirement plans, including the Unified Pension Scheme (UPS), the National Pension System (NPS), and the Old Pension Scheme (OPS). Each has its own benefits and drawbacks. A clear understanding of these pension schemes will help you select the one that aligns best with your retirement goals.
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†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. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
The Union Cabinet approved the Unified Pension Scheme (UPS) on August 24, 2024, with implementation set for April 1, 2025. Under this pension plan, employees with 25 or more years of service will receive a pension amount of 50% of their average basic pay over the last 12 months before retirement. For those with at least 10 years of service, there is a guaranteed minimum pension of ₹10,000 per month.
Beneficiaries: The pension scheme covers 23 lakh Central government employees, which can extend to 90 lakhs if state governments also join.
Family Pension: In case of death, the spouse receives 60% of the employee's pension.
Inflation Protection: The pension received under UPS will be indexed to inflation.
Gratuity: Lump sum payment will be calculated as 1/10th of the last drawn monthly pay (including dearness allowance) for every six months of completed service. This does not reduce the assured pension.
NOTE: Employees who retire under the National Pension System (NPS) by March 31, 2025, can choose between NPS and UPS, but their choice cannot change after selection.
The National Pension Scheme (NPS) is a government-backed retirement savings scheme in India. This investment plan is designed to help individuals systematically save for their retirement years.
Eligibility: Any Indian citizen aged 18 to 70 years can join.
Beneficiaries: NPS is open to everyone, whether you are a salaried employee or self-employed.
Regular Contributions: You save regularly in your NPS account during your working years. Your money is invested in a mix of stocks, corporate bonds, and government securities.
Retirement Benefits: You can withdraw 60% of the NPS fund as a lump sum when you retire. The rest 40% is used to buy a pension plan that gives you a regular income.
Tax Deductions: You can save on taxes with deductions available under Section 80C and Section 80CCD(1B).
NPS Calculator: The NPS Calculator is a handy tool that can help you estimate your returns on maturity.
The Old Pension Scheme (OPS) was a retirement plan that provided government employees with a guaranteed pension for life after retirement. In 2004, the National Pension Scheme (NPS) was introduced to replace OPS, which shifted from a defined benefit to a defined contribution system, where both employees and the government contribute to the pension fund.
Eligibility: OPS was available to government employees who joined the service before 2004.
Beneficiaries: It covered both central and state government employees.
Fixed Pension: Employees received a fixed monthly pension after retirement, which was usually half of their last drawn salary.
No Employee Contribution: Unlike NPS, employees didn’t contribute to their pension fund; the government fully funded it.
Inflation Adjustment: The pension amount increased with inflation through periodic revisions, known as Dearness Allowance (DA).
The following table highlights the key differences between UPS, OPS, and NPS schemes:
| Feature | Unified Pension Scheme (UPS) | New Pension Scheme (NPS) | Old Pension Scheme (OPS) |
| Pension Amount | 50% of average basic pay (last 12 months) | Market-linked returns | 50% of last drawn salary with DA hikes |
| Employee Contribution | 10% of basic salary | 10% of basic salary | None |
| Government Contribution | 18.5% of basic salary | 14% of basic salary | Paid entirely by the government |
| Inflation Protection | Yes, adjusted by AICPI-IW | No automatic adjustment | Yes, through DA hikes |
| Family Pension | 60% of employee’s pension | Based on accumulated corpus and annuity plan | Continues to family after retiree’s death |
| Minimum Pension | ₹10,000/month (10+ years of service) | No fixed minimum, it depends on investments | No specific minimum pension amount |
| Lump Sum Amount | 1/10th of last drawn pay (every 6 months) | Up to 60% of the corpus as a lump sum | Typically none (defined benefit plan) |
| Risk Factor | No market risk, assured returns | Subject to market risk, variable returns | Low risk, government-backed |
| Flexibility | Limited, with assured pension | High, with investment choice flexibility | Low, fixed benefits |
| Portability | Non-portable | Portable | Universal, restricted to government employees |
| Tax Benefits | Limited | Deductions under Section 80C/80CCD | Likely, but not yet defined |
The best pension scheme depends on your needs and financial goals. The Unified Pension Scheme (UPS) offers steady returns and inflation protection, similar to the Old Pension Scheme (OPS), which guarantees a pension with DA increases but is less flexible. The National Pension Scheme (NPS) allows for more investment options and the chance for higher returns, but it comes with more risk and no automatic protection against inflation. OPS or UPS might be better if you want security and government-backed benefits. NPS could be the right choice if you prefer flexibility and potentially higher returns.
The choice between UPS, NPS, and OPS depends on your needs. UPS offers reliable returns with inflation protection, OPS provides a secure pension with DA hikes, and NPS gives you investment flexibility and the potential for higher returns but with more risk. If you value stability, UPS or OPS can be the best choices for retirement planning. Those who want to beat inflation and have a high-risk tolerance should choose NPS.
†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. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). 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.
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^^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.
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