NPS vs UPS: Financial security is most important after retirement and for this, a proper investment plan is necessary. If you plan to get a pension of Rs 1 lakh every month after retirement, then for this you will have to invest in the right scheme.
National Pension System (NPS) and Universal Pension Scheme (UPS) are the two main options through which you can achieve this target. Let us know how much investment will have to be made in which scheme and which option will be better.
Will be implemented from April 2025
From April 1, 2025, all central government employees will get the option to choose between two pension schemes. National Pension System (NPS) and Unified Pension Scheme (UPS). Launched in January 2004, NPS replaced the Old Pension Scheme (OPS) and covers all departments under the central government. On the other hand, UPS is a new pension scheme recently announced by the government, which will come into effect from April 2025.
NPS vs UPS
NPS is a retirement scheme run by the Government of India, in which a person has to make regular investments. In this, investors get both lump sum amount and pension after the age of 60 years. The return in this depends on the market situation. On the other hand, UPS is a private pension scheme, in which a person can choose an investment plan according to his need. It has schemes of different companies and the return on investment may vary. Under UPS, the government will contribute 18.5% of the sum of basic salary and dearness allowance (DA), while the employee’s contribution will be 10%, which is the same as NPS.
Pension Guarantee
There is no fixed pension guarantee in NPS, while UPS provides pension based on a percentage of average basic salary. Under NPS, there is an option to invest in equity, debt and other market-linked funds, while UPS invests mainly in government bonds and secured schemes. The government’s contribution in UPS is higher than in NPS.
UPS Low Risk Plan
Investment in NPS is market linked, which makes it more risky, while UPS is a low-risk scheme as it offers a fixed pension. Now the question is how much investment will have to be made in both the schemes to get a monthly pension of Rs 1 lakh? Let us explain it to you in detail.
UPS: How to ensure pension of Rs 1 lakh after 35 years of service?
Suppose someone joins a government job on 1 April 2025 at the age of 25 and retires at the age of 60, he has worked for 35 years. If the average basic salary of the last 12 months before retirement is Rs 2 lakh per month, then under UPS, a guaranteed pension will be available at the rate of 50%, i.e. Rs 1 lakh per month. Apart from this, there is a provision to increase the pension every year according to inflation in UPS. If we assume an annual increase of 4.5 percent, then the pension at the age of 61 will be Rs 1,04,500.
NPS: How much investment is required to get a pension of Rs 1 lakh?
If a person starts working at the age of 25 and retires at the age of 60, he will need to invest Rs 16,800 every month (comprising 10% employee contribution and 14% government contribution).
Age to join NPS: 25 years. Monthly contribution (employee + government) is Rs 16,800. Expected return on investment is 9 percent. Total investment is Rs 70.6 lakhs and total return is Rs 4.27 crores. Closing amount is Rs 4.98 crores. 40% fund allocated for pension is Rs 1.99 crores and 40% fund allocated for pension is Rs 1.99 crores. Expected return on investment is 6 percent. Lump sum withdrawal is 60% i.e. Rs 2.99 crores and hence your pension will be Rs 1 lakh every month.
