Retirement planning: Unified Pension Scheme has been implemented for central employees from April 1. Under UPS, employees will be given a fixed pension. That is, this pension scheme will prove to be very beneficial especially for those employees who want a fixed income after retirement.

Central employees registered under NPS (National Pension System) will now have the option to choose either NPS or UPS. National Pension System (NPS) was implemented in 2004. Let us tell you that after the implementation of the NPS scheme, this pension scheme was opposed on a large scale. The main reason for this was the link of this scheme with the stock market. In the year 2009, the government also opened this scheme for private sector employees. Now the central employees coming under this scheme will have the option to switch to UPS.

This means that now the central employees will have to select one of the options from NPS or UPS. To understand which option is better for retirement planning, first let us know the special difference between the two.

Difference between UPS and NPS
The advantage of UPS is that under it, central employees will get a fixed pension, which will be 50 percent of their average basic salary 12 months before retirement, i.e. half of the salary. Whereas, the pension amount in NPS depends on the returns received from the market.

In both UPS and NPS, government employees will have to contribute 10% of their salary. But in NPS, the government's contribution is 14%, while in UPS it will be 18.5 percent.

Under UPS, after completing 25 years of service, employees will get at least 50 percent of the last salary as fixed pension and a lump sum amount. Not only this, the pension will also be increased according to the inflation rate. Whereas NPS does not have both these benefits.

Benefits of NPS

The National Pension System (NPS) also offers many benefits, such as many tax benefits. By investing in diverse assets such as stocks, government bonds, and corporate debt, NPS can help subscribers raise a large fund for retirement. Yes, indeed, NPS does not give any assurance of a pre-determined fixed pension amount after retirement, as it is an investment cum pension plan, in which your contribution is invested in market-linked instruments.

NPS was introduced to promote retirement savings among employees. Therefore, to increase participation in this scheme, many tax benefits are available on NPS contributions:

Investing in NPS gives the benefit of deduction under section 80C, the limit of which is Rs 1.5 lakh.

Investing in NPS also gives you tax exemption under section 80CCD (1B). That is, apart from the benefits available under 80C, a deduction of Rs 50,000 is also available under this section. In this way, you get a total tax benefit of Rs 2 lakh.

The tax benefit is also available on NPS investment under section 80CCD (2). Under this section, if an employer contributes to the NPS account of his employee, then the employee gets a tax exemption. Apart from section 80C, you also get the benefit of this section.

Exemption on withdrawal from NPS - When a taxpayer closes his NPS account or exits the NPS scheme, up to 60% of the total amount received from the NPS Trust is tax-free and the remaining 40% is taxable.

Which is better NPS and UPS?

It becomes very difficult to choose which of the retirement plans like NPS and UPS is better, because both have different benefits and features. While comparing NPS and UPS, one should also keep in mind the tax applicable on them.

Tax on NPS on maturity: On retirement, 60% of the accumulated corpus can be withdrawn and this amount is tax free. The remaining 40% is used to purchase an annuity, and the income from this annuity is taxable as per the income tax slab of the individual.

Tax on UPS maturity: UPS provides a guaranteed pension, which is taxable as per the individual's tax slab. The scheme also includes getting a lump sum amount on retirement, but how it will be taxed is not yet clear.

Two features of UPS can attract central employees and they can switch from NPS to this pension scheme. One is fixed income because people want a fixed income during retirement. The second biggest feature of this scheme is that the pension will also increase with time according to inflation, whereas this facility is not available in NPS pension.

Dearness allowance is also very important along with pension. If this is not there, then inflation will keep increasing year after year but the pension will remain the same. Looking at these benefits, it seems that many central employees can choose the option of UPS.

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