From April 1, 2025, central government employees now have the option to choose from two pension schemes – the National Pension System (NPS) and the Unified Pension Scheme (UPS). NPS, as you know, has been in force since 2004 and has replaced the Old Pension Scheme (OPS). On the other hand, UPS is a new scheme, which has been started by the government recently, and it has also been implemented now.

So then, what is the difference between NPS and UPS?

NPS is a market-linked scheme, meaning the return on your pension will depend on the market’s performance. Initially, the NPS was started for central government employees but later extended to the private sector also.

NPS subscribers are allowed to withdraw 60% of the maturity amount in lump sum and are required to invest 40% in an annuity scheme, which gives a monthly pension.

On the other hand, UPS is a guaranteed pension scheme. It has a government guarantee, so the risk is less. And the government’s contribution in it is more than NPS.

Also read: UPS vs NPS vs OPS: Which is more suitable for your retirement?

How will the contribution of the government and the employee be?

In UPS, the government will give a total of 18.5% of your basic salary and dearness allowance, while you will have to pay 10%.

The employee’s contribution in NPS is also 10%, but the government usually gives around 14%.

Pension guarantee and investment options

There is no fixed guarantee of pension in NPS.

In UPS, you will get a fixed pension according to the average basic salary.

In NPS, you can invest in equity, debt and other market funds.

UPS is more secure because it mainly invests in government bonds.

What about the risk?

NPS can be a little risky due to being market dependent.

UPS is a safe option because the pension is fixed in it.

Now the biggest question – how much investment will have to be made to get a monthly pension of Rs 1 lakh?

How will I get a pension of Rs 1 lakh after 35 years of service in UPS?

Suppose a 25-year-old youth starts a job on 1 April 2025 and retires at the age of 60. That is, he worked for 35 years. If his average basic salary in the last one year of retirement is Rs 2 lakh per month, then under UPS he will get a pension of 50% i.e. Rs 1 lakh.

And the special thing is that in UPS the pension will increase every year according to inflation. If we assume an increase of 4.5% annually, then next year the pension will be around Rs 1,04,500.

How much investment will have to be made in NPS for a pension of 1 lakh?

At the same time, if someone starts a job at the age of 25 and works till the age of 60, then he will have to invest about Rs 16,800 every month. This includes 10% of his and about 14% of the government’s share.

To understand the whole thing:

Investment will have to be done continuously for 35 years

Total monthly investment (including both government and employee) will be Rs 16,800

Estimated return will be around 9% per annum

At the time of retirement, you will have an amount of around Rs 5 crores

About 40% of this will be used for pension, i.e. around Rs 2 crores

This amount will be considered sufficient to get you a monthly pension of Rs 1 lakh

Also read: UPS to solve problems identified in NPS for central govt employees? Here’s what finance ministry says

Why is retirement planning necessary?

Retirement is such a stage in your life when you need financial security the most. Choosing the right plan keeps your future secure. After the introduction of UPS, it has now become necessary to compare both NPS and UPS. While NPS can give better returns, UPS gives a sure and secure pension.

NPS also has tax-saving benefits

Investors in NPS can get an additional tax deduction of Rs 50,000 under section 80CCD (1B), which is in addition to the 80C deduction of Rs 1.5 lakh under the old tax regime. This can mean a total tax saving of up to Rs 2 lakh. If you are in the 30% tax slab, this saving can be up to about Rs 62,400.

So then, is UPS better or NPS?

This question is important for government employees. UPS gives you stability and guarantee, while NPS has a chance of better returns but there is a little risk too. So everyone should decide according to their need, risk capacity and future plan.