Guaranteed Pension with UPS or Higher Benefits with NPS? A Detailed Comparison with Calculations

The government has introduced the Unified Pension Scheme (UPS) as a solution to provide guaranteed pensions for retired employees, aiming to address widespread protests by employees demanding financial security. While UPS is being positioned as an improvement over the National Pension System (NPS), financial experts argue otherwise. Here's a breakdown of how these schemes compare, with examples and calculations to help you understand the differences.

Key Differences Between NPS and UPS

1. Employee Contributions:
   • NPS: Employees contribute 10% of their salary, and the government adds 14%, totaling 24% of the salary.
   • UPS: The employee’s contribution remains 10%, but the government increases its share to 18.5%, totaling 28.5% of the salary.
2. Investment Returns:
   • In NPS, the total accumulated corpus earns an approximate annual return of 9%.
   • For UPS, a similar return rate is assumed for comparison.
3. Pension Calculation:
   • NPS: After retirement, 60% of the total corpus is paid as a lump sum, and the remaining 40% is used to purchase an annuity, earning 6% annual interest.
   • UPS: The entire corpus remains with the government, and pensions are calculated as 50% of the last drawn basic salary.

Example Calculation

Let’s assume:

• Average monthly salary: ₹80,000
• Service period: 25 years

For NPS

• Employee’s monthly contribution: ₹8,000 (10% of salary)
• Government’s monthly contribution: ₹11,200 (14% of salary)
• Total monthly contribution: ₹19,200

1. Total Corpus in 25 Years:
   • Contribution over 25 years = ₹57.60 lakhs
   • At 9% annual return, the corpus grows to ₹2.17 crore.
2. Post-Retirement Benefits:
   • Lump Sum: 60% of corpus = ₹1.30 crore
   • Pension: Annuity purchased with remaining 40% (₹87 lakh), earning 6% interest = ₹43,374 per month.
   • Total Monthly Pension: ₹43,374

For UPS

• Employee’s monthly contribution: ₹8,000 (10% of salary)
• Government’s monthly contribution: ₹14,800 (18.5% of salary)
• Total monthly contribution: ₹22,800

1. Total Corpus in 25 Years:
   • Contribution over 25 years = ₹68.40 lakhs
   • At 9% annual return, the corpus grows to ₹2.58 crore.
2. Post-Retirement Benefits:
   • Lump Sum: ₹24 lakh (based on semi-annual payments of 10% of salary over 50 half-years).
   • Pension: 50% of the last basic salary (assumed ₹1 lakh) = ₹50,000 per month.

Comparison of Monthly Pension

1. NPS Pension:
   • If ₹1.30 crore (lump sum) is invested in a fixed deposit at 6% annual interest, it yields ₹65,000 per month.
   • Adding annuity pension of ₹43,374, the total monthly pension becomes ₹1.08 lakh.
2. UPS Pension:
   • ₹50,000 from the pension + ₹12,000 from investing the ₹24 lakh lump sum = ₹62,000 per month.

Final Verdict

• NPS offers significantly higher returns and flexibility.
• Employees retain control of their accumulated corpus and receive both a lump sum and regular pension.
• In contrast, UPS requires employees to forego most of their accumulated corpus, leaving it with the government in exchange for a slightly higher monthly pension.

Expert’s Opinion:
As per Dr. Anandveer Singh, NPS ensures better financial security with both a large lump sum and higher monthly pensions, making it a superior option compared to UPS.

Disclaimer: This analysis is for informational purposes and based on assumed calculations. For personalized advice, consult a financial expert.