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New Delhi – More than 27 lakh central government employees are currently facing a crucial decision that could shape their financial future after retirement: whether to continue with the National Pension System (NPS) or switch to the newly introduced Unified Pension Scheme (UPS). The government has given employees until June 30, 2025, to finalize their choice — but here’s the catch: this switch can only be made once. Once opted, there is no going back.

This decision isn’t just for existing employees. New recruits joining government service also have to make their choice within 30 days of appointment. Given the long-term impact and irreversible nature of this decision, making an informed choice is critical.

What is the Unified Pension Scheme (UPS)?

Implemented from April 1, 2025, UPS is a defined benefit pension model that provides risk-free, fixed monthly pension payouts. According to the scheme, if a government employee has served for 25 years or more, they will receive 50% of the average salary of their last 12 months as a monthly pension after retirement.

To be eligible, a minimum of 10 years of service is mandatory. One of the notable benefits of UPS is that the pension will be adjusted over time based on the Dearness Allowance (DA), ensuring protection against inflation.

Key Financial Structure of UPS:

• Contribution Breakdown:

  • Employee: 10% of Basic + DA

  • Government: 10% of Basic + DA

  • Additional 8.5% by government to a "pool fund" to support the scheme’s long-term viability

• Bonus Benefit:
  Every six months, employees will receive a lump sum equivalent to 10% of DA, meaning that over 25 years of service, they could accumulate a bonus equal to five months’ salary.

What is the National Pension System (NPS)?

NPS, on the other hand, is a market-linked pension scheme, where retirement benefits depend on the amount contributed and investment returns. There is no guaranteed monthly pension, but it offers flexibility and the potential for higher returns.

Upon retirement, subscribers need to purchase an annuity, and the monthly pension is calculated based on market rates. Under NPS:

• Employee contributes 10% of their salary

• Government contributes up to 14%

Who Should Choose What?

According to financial analysts, NPS may only outperform UPS if it delivers annual returns of 16–21%, which is highly ambitious in current market conditions. Therefore:

• UPS is a better choice for employees who plan to serve till retirement, want financial stability, and prefer fixed, inflation-protected pensions.

• NPS could be suitable for individuals planning to switch to the private sector, or those who are comfortable with market risks and want the opportunity to build a larger retirement corpus.

Pros and Cons of UPS:

Advantages:

• Guaranteed, fixed pension

• Inflation-protected

• Long-term security for career government employees

Disadvantages:

• Only 10% of the government's 18.5% contribution goes into the employee’s individual account; the rest goes into a pooled fund

• If an employee’s retirement corpus does not meet the "benchmark corpus", the pension amount may reduce accordingly (e.g., 75% corpus equals only 37.5% pension)

• No pension for those who resign voluntarily or are dismissed from service

• No additional pension benefits for working beyond 25 years

Final Thoughts

Choosing between UPS and NPS is a major financial decision that central government employees must make with great care. UPS offers certainty and security, ideal for those looking at long-term service, while NPS offers flexibility and higher return potential, but comes with market risks.

Since this switch is one-time and permanent, employees should assess their career plans, financial goals, and risk appetite before opting in. The June 30 deadline is fast approaching — and once missed, there’s no second chance to reconsider.

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