The announcement of the Unified Pension Scheme (UPS) by the Modi government has led to discussions among employees, many of whom are comparing it with the National Pension Scheme (NPS). The key difference is the guaranteed pension coverage under the UPS, which is not available in the NPS. In this article, we will examine which option—NPS or UPS—might be better for an individual who serves in government employment for 25 years.

It is important to note that employees have the option to choose between these two pension schemes. This means there is no pressure to switch to the UPS; you can decide based on your own preferences. To facilitate this comparison, we will base our calculations on an average monthly basic salary of ₹80,000.

NPS Calculation

• In the NPS, an employee contributes 10% of their salary, while the government contributes 14%. Thus, a total contribution of 24% of the salary is deposited into the NPS each month.
• For an average monthly salary of ₹80,000, the employee’s contribution would be ₹8,000, and the government’s would be ₹11,200. In total, ₹19,200 is deposited in the NPS every month.
• If we assume a 9% return on the NPS investment, your total investment over 25 years would be ₹57.60 lakh. With the interest earned, your total fund would amount to approximately ₹2.16 crore (₹2,16,86,983).

UPS Calculation

• The UPS also requires an employee contribution of 10%. However, the government’s contribution increases from 14% to 18.5%. Therefore, the total contribution to the UPS would be 28.5% of the salary.
• Based on an average salary of ₹80,000, ₹22,800 would be deposited into the UPS monthly.
• This means that over the next 25 years, the total investment would be ₹68.40 lakh. Assuming a similar 9% return, your final fund size would be around ₹2.57 crore (₹2,57,53,292).

Pension Calculation

Under the NPS, at the time of retirement, you would receive 60% of the total amount, which translates to around ₹1.30 crore (₹1,30,12,190) as a lump sum. The remaining amount would be used to purchase an annuity, promising a monthly pension of approximately ₹43,374 at a 6% annual return.

On the other hand, with UPS, the entire fund remains with the government. In exchange, the employee receives 10% of their salary every six months. With an average salary of ₹80,000, this translates to ₹48,000 every six months. Over 25 years, this totals ₹24 lakh. Additionally, the pension amount would be 50% of the last 12 months’ average basic salary. If we assume the salary doubles by retirement, the pension could reach ₹50,000 monthly.

Engaging Calculation Insights

Let’s delve deeper into the financial outcomes. For NPS, if the lump-sum amount of ₹1.30 crore is invested in a Fixed Deposit (FD) at a 6% interest rate, it would yield a monthly income of ₹65,000. When this is combined with the annuity pension, the total monthly pension would reach ₹1.08 lakh.

Conversely, if the ₹24 lakh from UPS is similarly invested in an FD at 6% interest, it would generate ₹12,000 monthly. Adding this to the pension would provide a monthly total of ₹62,000. This is ₹46,000 less than what would be received under the NPS, illustrating that not only would you have a significantly lower monthly income with UPS, but the overall fund amount would also remain with the government.

Conclusion

In summary, while the UPS may offer benefits, the NPS structure allows for a more substantial fund accumulation and better monthly returns post-retirement. It’s crucial for employees to evaluate both pension schemes carefully, incorporating their personal financial goals and retirement plans into their decision-making process.