Unified Pension Scheme or National Pension Scheme: What should you opt for?

Serving and retired eligible employees Central Government have around 8 days left to take a decision; “whether to opt for ‘Unified Pension Scheme’”! Well, securing our post retirement life financially is a crucial goal. Understanding this need for large population, Government started taking initiatives after discontinuing ‘Old pension scheme’ for its employees and introduced ‘National pension scheme’ in the year 2004. To broaden the scope of the NPS, in the year 2009, government extended its benefits to private sector employees, self-employed people and people from unorganized sector. Now, last year, government introduced ‘Unified Pension Scheme’ to central government employees with assured pension benefits. The scheme can be extended to state government employees as well. It came into effect from 1^st April 2025 and all eligible serving and retired employees have been asked to choose between ‘National pension Scheme’ and ‘Unified Pension scheme’ till 30^th June 2025! The choice is difficult for some and obvious for many! Let’s understand simply about ‘Unified Pension Scheme’! Unified Pension Scheme: It’s a pension scheme introduced by the Government to all government employees to provide financial security post retirement by providing guaranteed pension, family pension benefits and benefits like minimum pension as per the respective eligibility. Unified pension scheme thus provides structured unified effort by the government to its serving and retired eligible employees and families of the deceased eligible employees.   Let’s see some important features of both:

SR NO	PARTICULARS	UNIFIED PENSION SCHEME	NATIONAL PENSION SCHEME
1	Meaning	Government of India introduced ‘Unified Pension Scheme’ in the year 2024, for all Central government employees so that the can get ‘assured pension’ post retirement. UPS can be extended to State Government employees as well	National Pension scheme’ has been introduced by the Government in the year 2004, to all government employees after discontinuing ‘Old pension scheme’.  Later, in the year 2009, NPS was extended to all individuals, NRIs, Self -employed and unorganized workers.
2	Regulated by	Pension fund Regulatory and development Authority	Pension fund Regulatory and development Authority
3	Eligibility	Central and state government employees	Central and state government employees, Individuals between age 18 to 60 include self-employed and unorganized workers too
4	Employer’s contribution	10% of the Basic salary + DA  to the ‘Individual corpus’ and 8.5% of the Basic salary + DA  to the ‘Pull corpus’	14% of the Basic salary + DA
5	Employee’s contribution	10% of the Basic Salary + DA	10% of the Basic Salary + DA

 

6	Investment Guidelines	One can choose pension fund and investment patterns along with the option of ‘Default choice’ in the ‘Individual corpus’. Investment choice for ‘Benchmark Corpus’ is by default. ‘Individual corpus’ means the value of corpus accumulated in the individual a/c. On the other hand, ‘Benchmark corpus’ is notional value calculated for comparison with individual corpus. It is based on NAV of the default investment.	One needs to open Tier I & Tier II a/c under NPS. Tier I is mandatory a/c and is non-withdraw able till the ‘exit ‘conditions are met. Tier II a/c is voluntary and investments made can be withdrawn flexibly. Investors are given two options for investment herein-(1) Auto Choice- Here investment portfolio is decided as per the age of the subscriber. Portfolio components are Equity, Government securities, Corporate debt and alternative securities like REIT etc. It’s a default option. (2) Active Choice- Here, subscribers can actively choose the portfolio components on their own.

 

7	Amount of pension	1. If the person completes 25 years in service then 50% of the 12 monthly averages basic pay immediately prior to superannuation. (2) In case of ‘Voluntary retirement’ after 25 years of qualified service, then assured pout will commence from the date the person would have superannuated if he would have continued with the service.  (3) IF a person complete minimum 10 years of series, then minimum assured pay-out is Rest 10,000 per month.  (4) IF the qualifying service is more than 10 years but less than 25 years, then proportionate pay-out is payable.	For NPS subscribers- (1) upon maturity age 60, they will get the option to withdraw 60% of the accumulated corpus while remaining 40% is utilized to purchase annuity. (2) A subscriber can utilise entire 100% to purchase annuity upon maturity. (3) If a subscriber retires or wants to discontinue NPS before maturity age 60, then at least 80% of the accumulated corpus is utilized for annuity and remaining is paid as lump sum. (4) In case of ‘death of the subscriber’ before attaining age 60, entire 100% of the accumulated corpus is paid to the nominee/legal heir while no annuity is available to them.
8	Gratuity	Retirement & Death gratuity is available	No any gratuity is available

 

9	Lump sum Pay-out upon Retirement	A lump sum pout is allowed upon superannuation. It is @10% of basic pay-day for every completed 6 months of the qualifying years of service. This lump sum pay-out will not affect assured pension benefits	Lump sum withdrawal differs upon the age of withdrawal
10	Family Pension benefits	Upon demise of the UPS subscriber, legally wedded spouse of such subscriber will receive for life, 60% of the amount of the admissible pay-out drawn by the subscriber immediately before the demise.	(a) Annuity is available for life with a provision of 50% of the annuity available to the spouse during his/her lifetime on death of the annuitant. (b) Annuity for life  with a provision of 100% annuity payable to spouse upon death of the annuitant © Annuity for life with the provision of 100% of the annuity payable to the spouse during his/her lifetime on death of the annuitant and with return of purchase price on death of the spouse. IF the spouse dies before the annuitant, then payment of annuity will cease after the death of the annuitant with purchase price paid to the nominee.
11	Risk level	A subscriber can choose investment pattern in ‘Individual Corpus’ in a ‘Lifecycle fund’ with up to 50% of the equity. On the other hand, ‘Default option’ is given by the government. However, ‘Pension amount ‘ is assured here.	A subscriber has ‘Auto choice and ‘Active choice’ which has equity component to it as per the choice of the investment pattern.  However, it carries aligned risk with no ‘guaranteed pay-out’.
12	Effect of inflation	Dearness relief’ is available for assured pension pay-outs and family pension pay-outs in the same manner as is available to serving employees. It is allowed from the time when pension commences.	No such relief is available.

    What should one opt for? NPS or UPS? Well, both the options seek financial independence post retirement to its subscribers. Both have their own features and benefits. If you seek regular guaranteed income post retirement with lesser risk, then you can opt for Unified Pension scheme. If you are ready to take some additional risk on investment, have longer term to serve, can generate additional surplus income post retirement through other means like some regular returns from other investments made etc. along with annuities from NPS to fill the gap if any,  then you can choose National pension scheme. Please read through more details about it in the official gazette notification available on the website of ‘Department of Financial Services’. Take a thoughtful decision considering your own requirements and preferences because once you opt for UPS, it is irrevocable decision!