Unified Pension Scheme (UPS) update: In a major good news for central government employees who are part of renowned national pension scheme (NPS), will soon to be able to adopt the benefits of the new pension scheme UPS which is notified to be implemented from April 1, 2025. Unified Pension Scheme (UPS) will offer Rs 10,000 minimum pension per month for a minimum of 10 years of service to government employees.

In a statement, the Finance Ministry notified that the Unified Pension Scheme will apply to Central Government employees who are covered under the National Pension System. The scheme will also be applicable to those who choose this option under the National Pension System.

Further, the ministry stated that the Pension Fund Regulatory and Development Authority (PFRDA) will soon release regulations to make UPS operational. UPS is going to come into effect from April 1, 2025.

Earlier in August last year, the Union Cabinet chaired by Prime Minister Shri Narendra Modi, approved the benefits of the Unified Pension Scheme (UPS).

Let’s compare both UPS vs NPS:

Unified Pension Scheme (UPS)

Salient features of UPS are:

1. Assured pension: 50% of the average basic pay drawn over the last 12 months prior to superannuation for a minimum qualifying service of 25 years. This pay is to be proportionate for a lesser service period up to a minimum of 10 years of service.

2. Assured family pension: @60% of the pension of the employee immediately before her/his demise.

3. Assured minimum pension: @10,000 per month on superannuation after a minimum of 10 years of service.

4. Inflation indexation: on assured pension, on assured family pension and assured minimum pension.

Further, Dearness Relief is based on the All India Consumer Price Index for Industrial Workers (AICPI-IW) as in the case of service employees.

Also, UPS will offer lump sum payment at superannuation in addition to gratuity.

Additionally, 1/10th of monthly emoluments (pay + DA) as on the date of superannuation for every completed six months of service this payment will not reduce the quantum of assured pension.

National Pension Scheme (NPS):

NPS was introduced by the Central Government to help the individuals have income in the form of pension to take care of their retirement needs. NPS is a market-linked defined contribution scheme that helps you save for your retirement. The scheme is simple, voluntary, portable and flexible. It is one of the most efficient ways of boosting your retirement income and saving tax. It allows you to plan for a financially secure retirement with systematic savings in a planned way, as per the NPS Trust website.

Here is the difference between UPS and NPS highlighted by ClearTax:

Particulars	Unified Pension Scheme (UPS)	National Pension Scheme (NPS)
Eligible employees	Government employees	Government employees, individuals between 18-60 years and NRIs
Pension amount	50% of the average basic pay over the last 12 months of retirement for employees retiring with at least 25 years of service and proportionate pension benefits for employees with 10-25 years of service	Pension amount depends on the investments made in the NPS investment scheme and the accumulated corpus
Minimum Pension Amount	Rs. 10,000 per month for employees with at least 10 years of service	Minimum pension amount depends on the investments made in the NPS scheme
Gratuity	Gratuity is paid along with a lump sum amount	There is no gratuity payment under NPS
Family Pension	In the case of the retiree’s death, 60% of the pension provided immediately before the demise is given to the family	Family pension amount depends on the accumulated corpus and the chosen annuity plan
Employer’s contribution rate	18.5% of the basic salary	14% of the basic salary
Employee’s contribution rate	10% of the basic salary	10% of the basic salary
Lump sum amount payment	A lump sum amount is provided to employees upon superannuation, which is 1/10th of their last drawn monthly pay for every six months of completed service	60% of the NPS corpus can be withdrawn as a lump sum upon superannuation
Tax benefit	The government has yet to provide clarity if employee and government contributions have any tax benefits	60% of the NPS corpus withdrawn as lump sum is tax-free, while the remaining 40% invested in NPS schemes is taxable
Inflation protection	Provides inflation protection by adjusting pensions based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).	There is no provision for automatic DA increments to protect against inflation
Attribution To: ClearTax

Which is better, NPS or UPS?

ClearTax on its website said, UPS offers a balanced approach by combining the benefits of NPS and OPS, making it a robust option for those seeking financial security. UPS provides a fixed pension amount, including an assured minimum pension, inflation indexation and an assured family pension. On the other hand, NPS may provide higher pensions or returns as employees invest in market-linked investments. Employees who understand how equity markets work and have at least 10-20 years remaining in government service can consider NPS as it has the potential to grow substantially and receive higher returns.

Lastly, ClearTax note said, “employees who want to receive an assured monthly pension post-retirement can consider shifting to UPS and separately investing in equities. While employees who have equity market knowledge and have 10-20 years left for retirement can consider continuing with NPS as they may receive higher annuity returns as a pension amount after retirement.”