Retirement Planning: With UPS on the way, is it time for government employees to ditch NPS?

As you are aware, the Union Government is preparing to implement the Unified Pension System (UPS) from April 1, 2025 to provide fixed inflation-linked pensions to subscribers.

As of now, the scheme is meant for only 23 lakh central government employees and state government employees can opt for them.

Wealth advisors suggest that having multiple retirement options is a good thing from an investor’s perspective.

“If you are looking to build long-term wealth and save for retirement, it is good to have a variety of options to choose from. Also, government employees will once again have the option of a guaranteed pension plan,” says Deepak Aggarwal, a financial advisor and chartered accountant in Delhi.

Interestingly, NPS Trust offers a Legal notice on your portal which does not guarantee or assure any returns while new policies may impact future returns.

Where is the NPS currently located?

From April 1, 2025, central government employees will have the option to opt out of NPS and opt for UPS. They can also continue with NPS if they wish.

Therefore, it is pertinent to know the difference between the two pension options before deciding to opt for one over the other.

The National Pension System (NPS) is a pension scheme that was implemented for government employees from 1 January 2004 but was later extended to all citizens of India in 2009.

But to choose UPS, you’ll have to say goodbye to that 20-year-old pension plan. Let’s look at some of the key distinctions between the two options.

Differences between both pension plans

YO. Pension versus guaranteeWhile the NPS provides a pension at the time of retirement in the form of an annuity and lump sum, the UPS offers a guarantee. This is a traditional pension similar to the old pension system, where retirees received a fixed pension adjusted for inflation throughout their life.

The NPS, on the other hand, provides the returns generated by investments madeThe total corpus created in the NPS is a function of numerous factors including the amount of investment made, the equity exposure, the duration of investment and the choice of pension fund manager.

second. Wealth creation versus fixed pension: NPS helps retirees build wealth throughout their lifetime by investing in a variety of financial assets including corporate debt, equity, government bonds and alternative investment funds.

It is a tool for saving for retirement and the capital is returned in a lump sum and in annuities, offering a sense of financial security to retirees. It is a way of building financial discipline for subscribers and professional fund managers are tasked with investing the money in the right assets.

UPS, on the other hand, will work with a completely different model and offer a fixed pension adjusted by indexation.

III. Predictability: NPS offers a Number of options for subscribersYou can choose between the active investment option and the automatic option. Within the automatic option, there are three sub-variants: aggressive, moderate and conservative.

And within active choice, you can determine your allocation to different assets including equities, corporate debt, government securities and alternative investment funds such as REITs, AIFs and Invlts.

In addition, you can choose any of the 10 pension fund managers who will invest your money in the proportion of the allocation you have chosen.

Therefore, it is difficult to predict how much corpus will be created in the end due to the availability of too many variables. UPS, on the other hand, seems to be much more predictable, at least at first glance.