UPS vs NPS vs OPS: Which is better for you?

On 24 August 2024, the government announced a new employee pension scheme, the Unified Pension Scheme (UPS), effective from 1 April 2025. Currently, all government employees are covered under the National Pension Scheme (NPS), which provides a pension based on market-linked investments. Before 2004, all government employees received pensions under the Old Pension Scheme (OPS). 

In 2004, the government introduced the NPS and discontinued the OPS. The government received a backlash from employees for discontinuing OPS. Thus, the government announced the UPS to provide assured pension amounts. However, only employees who are currently subscribers of the NPS, including retirees, can opt for the UPS.

Read more about UPS, NPS, and OPS, their differences, and which is better for you.

What is Unified Pension Scheme (UPS)?

The Unified Pension Scheme (UPS) is a new pension scheme introduced by the government in 2024. This scheme offers a guaranteed pension, family pension and minimum pension to all Central Government employees. It can be extended to state government employees as well. Employees covered under the NPS can opt for the UPS. 

It guarantees a pension amount of 50% of the average basic pay over the last 12 months before retirement for employees with at least 25 years of service. A minimum pension amount of Rs. 10,000 per month is provided to employees with a minimum of 10 years of service upon superannuation. In case of the pensioner’s death, 60% of the pension amount immediately before the retiree’s demise will be given to her/his family. 

What is National Pension Scheme (NPS)?

The government introduced the National Pension Scheme (NPS) in 2004 for all government employees after the discontinuance of the Old Pension Scheme (OPS). In 2009, the government extended the NPS scope to cover all individuals, including NRIs, self-employed and unorganised workers.

The NPS offers various market-linked annuity schemes, where employees or individuals can regularly invest and receive an annuity after retirement. 

The NPS subscribers can withdraw 60% of the accumulated NPS corpus as a lump sum and invest the remaining 40% in any of the NPS professional fund managers to receive pension annuities. Under NPS, there is no assured pension amount. The pension amount that an individual receives depends on the market performance and the NPS investment schemes. 

What is Old Pension Scheme (OPS)?

Before the introduction of the NPS in 2004, all government employees were covered under the Old Pension Scheme (OPS). The OPS provided a guaranteed pension amount for government employees with at least ten years of service based on the last basic salary they received and the years of service. 

Under OPS, government employees receive a pension amount after retirement with the benefit of Dearness Allowance (DA) revision twice a year. In case of the pensioner’s death, his/her family will receive pension benefits.

Differences between UPS, NPS and OPS

Which is better for you - UPS, NPS or OPS?

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.

Employers and employees must contribute a percentage of their basic salary plus DA towards the UPS pension fund, which was not there under the OPS. However, the contribution increases the pension corpus and makes up for any shortfall in pension commitments. 

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.

However, these investments are subject to market risks, and the final pension amount may vary. 

Employees nearing retirement or who do not want to take market risk can consider UPS, as it provides a stable and predictable income after retirement.  

Thus, 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. 

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