Opted for UPS and thinking of going back to NPS?Here's all you need to know

Employees under UPS now have one-time option to shift back to NPS before retirement; assured payouts end but government adds 4% extra to NPS corpus at exit

The Centre has given a one-time and one-way option to its employees to switch back to the National Pension System (NPS) from the Unified Pension Scheme (UPS).

 

Who can switch?

According to the government notification, the switch can be exercised by employees who:

 

• Opted for UPS but wish to return to NPS. 
• Are not facing removal, dismissal, compulsory retirement, or any pending disciplinary proceedings.

 

And when?

 

Not later than one year before superannuation or three months before voluntary retirement. 

If the facility is not used within the given timelines, the employee will remain under UPS by default.

   

What happens after the switch?

Once an employee chooses to move back to NPS:

 

• They will no longer be entitled to the assured payouts of UPS. 
• The government’s 4 per cent differential contribution will be calculated and added to their NPS corpus at the time of exit. 
• The PFRDA’s Exit and Withdrawal Regulations, 2015 will apply.

 

This makes the decision significant, as the move is final and irreversible.

 

Benefits of NPS

Unlike UPS, the National Pension System is market-linked and does not guarantee fixed payouts. However, it comes with distinct advantages:

 

Higher return potential: Investments are spread across equities, corporate debt, and government bonds. Over the long term, this could yield better returns than fixed pensions.

 

Flexibility in investment choice: Subscribers can choose allocation between equity, corporate bonds, and government securities.

 

Portability: NPS accounts remain valid even if the employee changes job or location.

 

Lump sum withdrawal: At retirement, up to 60 per cent of the corpus can be withdrawn tax-free. The rest must be used to buy an annuity, which provides a monthly pension.

 

Benefits under UPS

The Unified Pension Scheme, operational from 1 April 2025, was introduced as an option under NPS for central government employees. It promises:

 

An assured monthly pension of 50 per cent of the average basic pay in the last 12 months before retirement (after 25 years of service).

 

• A minimum pension of Rs 10,000 per month with at least 10 years of service. 
• Family pension at 60 per cent of the last payout to the spouse. 
• Dearness relief on pensions, similar to DA for serving employees. 
• Lump sum benefit equal to 10 per cent of emoluments for every completed six months of qualifying service.

 

Both NPS and UPS provide tax benefits under the Income Tax Act, 1961.

 

NPS: Contributions qualify for deductions under Sec 80C, 80CCD (1), and an extra Rs50,000 under Sec 80CCD(1B).

 

UPS: The same tax benefits apply, since the government has extended them explicitly to UPS.

 

How many employees have opted in for UPS?

In a written reply to the Lok Sabha, finance ministry had said that, as on 20 July 2025, a total of 31,555 central government employees had chosen UPS, which is only around 1.37 per cent of those eligible. The government has extended the last date to enrol under UPS to 30 September 2025.

 

Why it matters

The introduction of a switch option highlights the government’s attempt to balance flexibility with long-term retirement security. While UPS offers certainty through fixed payouts, NPS is market-linked and may provide higher returns over time.

 

Employees will now have to carefully weigh in assured pension versus investment-linked growth before deciding whether to remain in UPS or move back to NPS.