UPS or NPS: Which retirement plan fits your future? Deadline hits tomorrow

As the September 30 deadline approaches, the central government employees must choose between the assured payouts of UPS and the market-driven growth of NPS.

As the September 30 deadline approaches, the central government employees face a crucial decision, stick with the National Pension System (NPS) or shift to the newly introduced Unified Pension Scheme (UPS). With only about 1.37 per cent of eligible staff opting for UPS as of July 2025, according to finance ministry data shared in Lok Sabha, many are weighing stability against growth potential. Here's a breakdown of both the schemes to help you make a choice.

Understanding NPS

Launched in 2004, NPS is a market-linked retirement savings plan open to central government employees joining after January 1, 2004. It invests contributions in equities, corporate bonds, and government securities, offering flexibility but no guaranteed returns.

 

 

Key features: Employees can allocate investments as per risk appetite. At retirement, up to 60 per cent of the corpus can be withdrawn tax-free, with the rest buying an annuity for monthly payouts.

 

Pros: Higher potential returns over time; portable across jobs; tax deductions under Sections 80C, 80CCD(1), and an extra Rs 50,000 under 80CCD(1B).

 

Cons: Payouts depend on market performance, which can be volatile.  ALSO READ | National Pension Scheme: Can you plan early retirement with this plan?

What is UPS?

Notified in January 2025 and effective from April 1, UPS blends elements of the old pension system with NPS. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), it promises assured payouts for those with at least 10 years of service.

 

Key features: A guaranteed pension of 50 per cent of average basic pay from the last 12 months (after 25 years); minimum Rs 10,000 monthly; family pension at 60 per cent for spouses; inflation-linked dearness relief; and a lump-sum benefit of 10 per cent of emoluments per six months served.

 

Pros: Predictable income in retirement; protection against market dips.

 

Cons: Less flexibility; lower growth if markets perform well.

 

Employees joining between April and August 2025 can switch from NPS to UPS by the deadline, per a recent government notification. Those already in UPS have a one-time option to revert to NPS, but only up to a year before superannuation or three months before voluntary retirement, provided no disciplinary issues.  ALSO READ | UPS option for govt staff: Offline submission open amid online glitches

NPS vs UPS: Tax treatment

Both schemes offer similar tax perks, as clarified in FAQs from the Department of Financial Services. Employee contributions up to 10 per cent of basic pay plus dearness allowance qualify for deductions under Section 80CCD(1). Government inputs are deductible under 80CCD(2). Withdrawals: Up to 60 per cent of corpus tax-free in NPS; similar in UPS, with excess amounts taxed as salary. Pensions are taxable as income.

Which one is for you?

UPS prioritises security with fixed benefits, ideal for risk-averse individuals, while NPS suits those chasing higher returns through investments. With the deadline fast approaching, review your financial goals. Consult the DFS FAQs or a financial advisor, as this shapes decades of post-retirement life. The government's move aims to balance certainty and flexibility, but the right pick depends on your circumstances.