KyaYehihai Right Choice?
By DheerajJandial
The Jammu and Kashmir Finance Department’s communication dated 23rd of June, 2025 enjoining upon the All-India Services Officers to exercise their option of opting for United Pension Scheme to else to continue to existing New Pension Scheme has resulted into a conundrum. All the Central Government officers are extensively deliberating on the pros and cons of the Unified Pension Scheme or else are seeking the expert opinion.
The “choice option for UPS” primarily refers to the exercise of option for shifting to the Unified Pension Scheme (UPS), introduced on April 1, 2025. Employees can choose to transition from NPS to UPS, but the decision once made is final and irrevocable. This irrevocability has put the All-India Services Officers in a conundrum, who now wants to make an informed choice as any wrong decision shall result into post-retirement ramifications for them.
Sensing the strain in exploration of the better choice, the Central Government has now extended the deadline to choose between the Unified Pension Scheme (UPS) and the National Pension System (NPS) for eligible central government employees to September 30, 2025 from the initial deadline to exercise this option till June 30, 2025. This decision impacts those already under NPS who want to switch to UPS and to those newly recruited after April 1, 2025.
While, the UPS offers a defined pension structure with a guaranteed minimum of ₹10,000 per month, the NPS relies on accumulated corpus and annuity purchase for retirement payout.
The Unified Pension Scheme (UPS) is often seen as more favorable than the National Pension System (NPS) for government employees due to its guaranteed pension payout and inflation protection. While NPS offers potentially higher returns through market-linked investments, it lacks the guaranteed income and security that UPS provides, especially regarding family pensions and inflation adjustments.
While, it is expected that Jammu and Kashmir, which presently has an elected government too shall be deliberating upon the UPS for its employees in the Monsoon Session of Legislative Assembly and it is expected that option shall be provided to the UT employees to either switch to the UPS or continue in the NPS. Meanwhile, Maharashtra is the first state to implement UPS. The Maharashtra cabinet decided to implement the scheme for state government employees on 25th August 2024. As per conservative estimates, if all States opt for implementation of UPS then the number of employees benefitting from scheme is likely to surge to 9 million.
On whether the existing NPS scheme is beneficial or switch to UPS shall afford more benefits, the question is too multifaceted and depends on variabilities. Here’s a more detailed comparison of the two schemes :
| FEATURES | NATIONAL PENSION SCHEME (NPS) | UNIFIED PENSION SCHEME (UPS) |
| Pension Amount | Market Linked pension. No defined pension, with the value depending upon the performance of the Investment Fund | Guaranteed pension of 50% of the average Basic Pay for the last 12 months before retirement. |
| Inflation Indexation | Not Applicable, the pension is market linked. | Indexed for Inflation based on the All India Consumer Price Index for Industrial Workers. |
| Employee Contribution | Defined Contribution of 10% of Basic Pay and Dearness Allowance from the employee | Defined Contribution of 10% of Basic Pay and Dearness Allowance from the employee |
| Government Contribution | Defined Contribution of 14% of the employee’s Basic Pay and Dearness Allowance | Defined Contribution of 18.5% of the employee’s Basic Pay and Dearness Allowance, where 10% goes to the employee’s account and 8.5% goes to a separate pooled fund. |
| Family Pension | Corpus Dependent | Yes. It is 60% of the employee’s last drawn pension |
| Market Exposure /Risk | There is high market exposure/risk since investments are made in a mix of equity and government debt instruments | There is partial market exposure/risk since investments are made in government debt instruments |
| Taxation | Contributions to the NPS are tax-deductible, but withdrawals and pension pay outs are subject to taxation, impacting the net benefit.
|
Details on taxation still awaited. It is expected that pension income under UPS will be subject to Income Tax |
| Fiscal Burden | Low | Marginal |
| Gratuity | Gratuity benefits typically not available | Guaranteed Gratuity benefits |
| Flexibility | Experts are of the view that NPS offers greater flexibility when it comes to investing and withdrawing funds. Under NPS, the exposure to equities can be increased or decreased any time. Also, you can prolong the accumulation phase until the age of 70, providing an opportunity to expand your retirement corpus over a longer period. NPS has also recently introduced the option for subscribers to initiate a systematic withdrawal plan, as an alternative to receiving a lump-sum payout. NPS has also recently introduced the option for subscribers to initiate a systematic withdrawal plan, as an alternative to receiving a lump-sum payout. | No such flexibility is there under UPS |
Apart from above illustration, the central government employees should also know the pros and cons of the pension scheme under UPS to decide.
Pros under UPS
- UPS aims to provide guaranteed pension payouts after retirement. According to the pension scheme rules, a central government employee will receive 50% of their average pay for the last 12 months as pension, provided they have worked for 25 years or more.
UPS Payout Calculation
| TYPE OF PAYOUT | ELIGIBILITY | PENSION AMOUNT |
| Full Assured Payout | At least 25 years of service | 50% of the average pay over the last 12 months before retirement |
| Proportional Payout | Less Than 25 years of service | Calculated proportionally based on the years of qualifying service |
| Minimum Guaranteed Payout | At least 10 years of service | Rs. 10,000/- per month |
Family Payout under UPS?
In case of death of the payout holder after superannuation, family payout @60% of the payout admissible to the payout holder immediately before his demise, shall be assured to the legally wedded spouse (spouse legally wedded as on the date of superannuation or on the date of voluntary retirement or retirement under FR 56(j), as may be applicable).
When is assured payout under UPS shall not applicable to Central Government employees?
The option of assured payout under UPS shall not be available to the Central Government employees in the following circumstances:
a. In case of an employee superannuating before qualifying service of 10 years, from the date of superannuation.
b. In case of removal or dismissal from service or resignation of the employee.
- Pension under UPS will be indexed to inflation, via dearness relief.
There is a higher government contribution to UPS as compared to NPS. Under the UPS, the government contributes 18.5% in total, where 10% goes to the employee’s account and 8.5% goes to a separate pooled fund.
The Benchmark Corpus- The Muddle on its computation
A ‘benchmark corpus’ value shall be computed, in such a manner as may be determined by the PFRDA, with the following assumptions, namely:
i. regular contributions by the employees as well as the employer, as applicable under the scheme, are received for each month of qualifying service;
ii. in case of missing contributions, an appropriate value, to be determined by the PFRDA, shall be assigned; and
iii. investment of such contributions shall be made as per the ‘default pattern’ of investment defined by the PFRDA.
- UPS provides a one-time lump sum payment equal to one-tenth of the last drawn basic salary plus dearness allowance, for each completed six months of qualifying service. Along with this lump sum, an employee will also be eligible for gratuity.
Cons under UPS
- Even though UPS has a higher government contribution, only 10% is deposited into the employee’s pension account. The additional 8.5% is deposited into the pool corpus, which is made to enhance the stability and sustainability of the entire pension scheme. This portion will not be paid to the subscriber on maturity.
A central government employee may need to fund the deficit to be eligible for the 50% assured payout if the UPS benchmark corpus falls short. Benchmark corpus is a notional value that acts a reference point for evaluating whether the government employee’s total accumulated corpus at the time of retirement is sufficient. It is important to note that surplus money will be refunded if it exceeds the benchmark corpus.
3. The government employee may not gain better pension if the qualifying service is less than 25 years but more than 10 years. Also, any service period beyond 25 years is effectively ignored for payout benefits.
4. In UPS, a retiree can receive the payout benefits only after reaching the superannuation age. If voluntarily retired, he/she must wait till superannuation age to get the benefits.
5. Legal heirs of a central government employee will not get full benefits in UPS. In case of early demise, spouse will get 60% of guaranteed sum.
What Experts opine: NPS versus UPS in Tabulated format on Corpus and Pension
The UTI pension Fund has worked out the quantum of Corpus and Pension the employee shall be receiving on his superannuation with following hypothesis
- Basic Pay at 60 years for someone starting at Rs 50,000/- per month, assuming 3 % annual increase
- Fund growth assumed at 8% CAGR (Compound Annual Growth Rate). CAGR is the rate of returnthat an investment would need to have every year in order to grow from its beginning balance to its ending balance, over a given time interval.
- Annuity return assumed at 6%
| AGE OF JOINING GOVERNMENT SERVICE | 25 (Years) | 27 (Years) | 30 (Years) | 35 (Years) |
| SERVICE PERRID | 35 (Years) | 33 (Years) | 30 (Years) | 25 (Years) |
| LAST SALARY | 1,36,595 | 1,28,754 | 1,17,828 | 1,01,640 |
| NPS Corpus | 3,59,54,344 | 3,01,04,550 | 2,29,31,630 | 1,42,79,938 |
| UPS Corpus | 4,26,95,783 | 3,57,49,153 | 2,72,31,311 | 1,69,57,426 |
| NPS Pension | 1,79,772 | 1,50,523 | 1,14,658 | 71,400 |
| UPS Pension | 2,13479 | 1,78,746 | 1,36,157 | 84,787 |
UPS vs NPS: Don’t Disregard National Pension Scheme
To sum it up, government employees who switch to UPS can hope to see a big increase in their pension. The NPS will provide a larger retirement corpus, while the UPS will offer a higher monthly pension that increases over time. NPS grants you a higher level of control by allowing you to select from various asset classes and fund managers. UPS lacks such flexibility. Considering these factors, financial experts believe that government employees should not disregard the potential benefits of the NPS, and pick wisely between UPS and NPS, based on their individual requirements.
Therefore, UPS is often preferred by government employees who prioritize a secure and predictable retirement income with inflation protection, while NPS may be more attractive to those who are comfortable with market risk and seeking potentially higher returns.
For those of who are still indeterminate on what to opt, they can seek solace in in this remarkable quote, “Don’t let the mixed signals fool you. Indecision is also decision”.
(The writer is District Treasury Officer, Udhampur)
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