Starting April 1, 2025, central government employees (except armed forces) will have to choose between two pension schemes:
✅ Unified Pension Scheme (UPS) – A blend of old and new pension schemes with guaranteed benefits.
✅ National Pension System (NPS) – A market-linked retirement savings plan.
This article compares both options, focusing on gratuity, pension returns, and risk factors to help employees make an informed choice.
UPS integrates features from both the old and new pension schemes. It aims to provide financial security through:
Guaranteed pension (50% of the last 12 months' average basic salary).
Inflation-adjusted gratuity.
Family pension benefits.
Lump sum payout on superannuation.
UPS will apply to central government employees who joined service before January 1, 2004.
UPS offers:
🔹 Gratuity formula: 1/10th of monthly emoluments (Basic + DA) for every 6 months of service.
🔹 Minimum guaranteed payout with no deduction from the employee’s account.
🔹 Lump sum superannuation payout, ensuring financial security post-retirement.
| Feature | Unified Pension Scheme (UPS) | National Pension System (NPS) |
|---|---|---|
| Pension Guarantee | 50% of the last 12 months' average basic salary | Market-dependent returns |
| Government Contribution | 18.5% of Basic + DA | 14% of Basic + DA |
| Employee Contribution | 10% of Basic + DA | 10% of Basic + DA |
| Investment Risk | Low (mostly in government bonds) | High (market-linked) |
| Expected Monthly Pension | ₹90,000 (for an employee retiring at ₹1.8 lakh basic salary) | ₹90,000 (depends on market performance) |
| Gratuity | Guaranteed, inflation-adjusted | Only if opted under NPS Tier-1 |
| Lump Sum Withdrawal | Fixed payout | 40% allocated to annuity, 60% can be withdrawn |
🔹 A government employee joining at 25 and retiring at 60 with a basic salary of ₹1.8 lakh/month can expect:
✔ ₹90,000/month as a guaranteed pension.
✔ Adjusted for 4.5% inflation, pension will increase to ₹94,050/month at 61 years.
🔹 UPS primarily invests in government bonds, ensuring low risk and stable payouts.
🔹 If an employee contributes ₹16,800/month (including government share) for 35 years, assuming 9% annual return, then:
✔ Corpus at retirement = ₹4.5 crore.
✔ ₹2.7 crore as a lump sum withdrawal.
✔ ₹90,000/month as an annuity (40% of corpus at 6% return).
🔹 NPS has higher return potential but is subject to market fluctuations.
✅ Choose UPS if:
You prefer guaranteed income with low risk.
You want a fixed pension amount post-retirement.
You seek government-backed security over high returns.
✅ Choose NPS if:
You are willing to take market risks for potentially higher returns.
You want flexibility in corpus withdrawal.
You aim for wealth accumulation beyond fixed pension benefits.
Both UPS and NPS have unique benefits. UPS is ideal for risk-averse employees, while NPS offers higher returns with market risks. Employees should evaluate personal financial goals before making a decision.
Would you prefer guaranteed pension or market-linked wealth creation?
