Government employees have an important opportunity to choose between the National Pension Scheme (NPS) and the Unified Pension Scheme (UPS). The last date for this choice is 30 September. Earlier, this deadline was 30 June, but the Finance Ministry had extended it by three months.
This decision will directly affect the future of the employees. While NPS is linked to the market, UPS promises a fixed and guaranteed pension. Both schemes come with their own advantages and disadvantages, which are very important to understand.
National Pension Scheme
NPS was introduced in 2004 to replace the Old Pension Scheme (OPS) for government employees. In 2009, it was also opened to the private sector, self-employed professionals, and non-resident Indians.
How does NPS work
Under this scheme, employees make regular contributions and on retirement (age 60), 40% of the total amount accumulated has to be used to buy an annuity, while the remaining 60% can be withdrawn as a lump sum tax-free.
Advantages
Being market-linked, it can offer high returns.
60% of the total fund can be withdrawn tax-free on retirement.
Tax exemption is available under sections 80C, 80CCD(1B), and 80CCD(2) of the Income Tax Act.
Disadvantages
Returns are linked to market risks, so the pension is not guaranteed.
40% of the amount has to be invested in an annuity plan, which reduces immediate liquidity.
Unified Pension Scheme
UPS was launched to provide a guaranteed pension in 2024. The scheme covers all central government employees who are already covered under NPS.
How does UPS work
Employees who have served for 25 years or more get 50% of the average of the basic salary of the last 12 months before retirement as a pension. Employees who have 10 years of service or more get a pension of at least ₹10,000 per month on retirement. After the death of the pensioner, 60% of the final pension is given to his family.
Benefits
It guarantees a fixed pension based on the basic salary of the last 12 months.
The family also gets financial security after the death of the pensioner.
It increases with the dearness allowance, thereby maintaining purchasing power.
It includes gratuity.
Disadvantages
It is less flexible than the market-linked NPS.
It is less beneficial for those who want to retire early.
NPS or UPS
NPS is ideal for employees who want market-linked growth and want to choose their investment options themselves. It is for those who are willing to take risks so that they can get high returns in the future.
On the other hand, UPS is best for government employees who want a safe and predictable income after retirement. It is for those who want to ensure their future financial security without any risk. Your choice depends on your risk appetite and future needs.
