NPS vs UPS: Financial security after retirement is most important and for this the right investment plan is necessary. If you plan to get a pension of Rs 1 lakh every month after retirement, then for this you have to invest in the right scheme. National Pension System (NPS) and Universal Pension Scheme (UPS) are the two major options through which you can achieve this target. Let us know how much investment will have to be made in which scheme and which option will be better.
Will be implemented from April 2025
From April 1, 2025, all central government employees will get the option to choose from two pension schemes. National Pension System (NPS) and Integrated Pension Scheme (UPS). Launched in January 2004, NPS 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 be implemented from April 2025.
NPS vs UPS
NPS is a retirement scheme run by the Government of India, in which a person has to make regular investments. In this, investors get both lump sum and pension after the age of 60 years. The return on this depends on the market situation. On the other hand, UPS is a private pension scheme, in which a person can choose an investment plan according to his need. It has schemes of different companies and the return on investment may vary. 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 provides a pension based on the percentage of average basic salary. Under NPS, there is an option to invest in equity, loans, and other market-linked funds, while UPS invests mainly in government bonds and secured schemes. The government's contribution to UPS is higher than NPS.
UPS is a low-risk scheme
Investment in NPS is linked to the market, making 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 schemes to get a monthly pension of Rs 1 lakh? Let us explain it to you in detail.
UPS: How to ensure a pension of Rs 1 lakh after 35 years of service?
Suppose someone joins a government job on April 1, 2025, at the age of 25 and retires at the age of 60, he has worked for 35 years. If the average basic salary of the last 12 months before retirement is Rs 2 lakh per month, then under UPS, a guaranteed pension will be available at the rate of 50%, i.e. Rs 1 lakh per month. Apart from this, there is a provision to increase the pension every year according to inflation in UPS. If we assume an annual increase of 4.5 percent, then the pension at the age of 61 will be Rs 1,04,500.
NPS: How much investment is required for a pension of Rs 1 lakh?
If a person starts working at the age of 25 and retires at the age of 60, he will need to invest Rs 16,800 every month (including 10% employee contribution and 14% government contribution).
Age to join NPS: 25 years. The monthly contribution (employee + government) is Rs 16,800. The estimated return on investment is 9 percent. If the total investment is Rs 70.6 lakh, then the total return is Rs 4.27 crore. In this, the closing amount is Rs 4.98 crore. 40% fund allocated for pension is Rs 1.99 crore and 40% fund allocated for the pension is Rs 1.99 crore. The estimated return on investment is 6 percent. Lump sum withdrawal is 60% Rs 2.99 crore, due to which your pension will be Rs 1 lakh every month.
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