Heated exchanges on the Unified Pension Scheme (UPS) were ignited by the government’s recent announcement. Although UPS does provide the guarantee of a pension, the facts regarding the National Pension System (NPS) tell a different story concerning better returns.
This article undertakes the approach of calculating ins and outs, advantages, and long-term possibilities of the schemes to examine which one serves employees better.
Difference One: UPS vs. NPS
Under the UPS, employees have a promise of a fixed pension by the government, but employees lose their entire accumulated corpus at retirement. Instead of a lump sum, they get periodic payouts as well as a pension based on their last drawn salary.
In contrast, on the NPS, employees are able to keep a large part of their savings while getting a steady pension by way of annuities. The flexibility and the returns make the NPS a better long-term investment.
Breaking Down the Numbers: UPS vs NPS
Let’s compare both schemes with an example:
- Employee’s Average Salary: ₹80,000
- Service Tenure: 25 years
Scenario 1: National Pension System (NPS)
- Employee Contribution: 10% of salary
- Government Contribution: 14% of salary
- Total Monthly Investment: 24% of ₹80,000 = ₹19,200
- Total Corpus After 25 Years (at 9% annual return): ₹2.16 Crore
At Retirement:
- 60% Lump Sum Withdrawal: ₹1.30 Crore (tax-free)
- 40% Used for Annuity: Monthly pension of ₹43,374
- Additional Benefit: If the lump sum is invested in an FD at 6% interest, it yields ₹65,000/month
- Total Monthly Pension (Annuity + FD Interest): ₹1.08 Lakh
Scenario 2: Unified Pension Scheme (UPS)
- Employee Contribution: 10% of salary
- Government Contribution: 18.5% of salary
- Total Monthly Investment: 28.5% of ₹80,000 = ₹22,800
- Total Corpus After 25 Years (at 9% annual return): ₹2.57 Crore
At Retirement:
- No Lump Sum Payment – The Entire corpus remains with the government
- Pension: 50% of last basic salary (e.g., ₹50,000 if basic salary is ₹1 lakh)
- Additional Benefit: A one-time amount of ₹24 lakh (paid in installments over service years)
- Effective Monthly Benefit: ₹62,000 (including pension and installment value)
NPS compares favorably to UPS for the following reasons
- Better Financial Control: In NPS, 60% of the corpus can be withdrawn tax-free, which can then be used for reinvesting and earning more.
- Higher Returns: Although a comparatively lesser government contribution is there, NPS returns give overall higher pension benefits due to lump-sum withdrawals.
- Long-Term Protection: In contrast to UPS, where a complete blockage is for the duration, NPS allows you to hold on to your own money.
Expert Viewpoint
Dr. Anandvir Singh, UP State Advisor of Ateva, stated: “NPS gives a sum of ₹1.30 crore, with a pension coming in monthly; if wisely invested, this can bring in more than ₹1 lakh/month as total pension. In comparison, UPS has limited monthly pension support of ₹50,000 and no lump sum benefit, so NPS triumphs in all respects.”
FAQs: UPS vs NPS
- Guaranteed pension under NPS?
No, but it does provide a lump-sum withdrawal and annuity-based pension, ensuring more overall benefits. - What is the biggest drawback of UPS?
The employees cannot withdraw even a penny of the corpus: the government keeps everything. - What is the expected pension from NPS?
On a ₹2.16 crore corpus, ₹1.30 crore lump sum + ₹43,374 monthly pension, which can grow with some smart investments.