Introduction
This blog provides a comparison between the National Pension System (NPS) and the Unified Pension Scheme (UPS), featuring a calculator prepared by professionals from Revenue Services. The aim is to assist you in selecting the most suitable pension option based on your needs.
National Pension System (NPS)
The National Pension System (NPS) is a government-initiated retirement savings initiative in India, designed to ensure subscribers receive a stable post-retirement income. Here are key features of NPS:
- Regulation: Managed by the Pension Fund Regulatory and Development Authority (PFRDA).
- Account Setup: Each subscriber is assigned a Permanent Retirement Account Number (PRAN).
- Investment Flexibility: Subscribers can invest in various asset classes, including:
- Equity
- Corporate bonds
- Government securities
- Alternate assets
- Cost-Effectiveness: NPS is both economical and portable.
- Tax Benefits: Subscribers can enjoy tax deductions under:
- Section 80CCD(1)
- Section 80CCD(1B) of the Income Tax Act.
- Transferability: It allows for the transfer of superannuation funds without tax implications.
- Investment Options: Subscribers can choose between Active Choice and Auto Choice based on their risk tolerance and asset allocation preferences.
- Eligibility: Available online to Indian citizens aged 18-70 years, with corporate tax exemptions applicable to employer contributions.
HDFC Bank offers assistance with NPS services, including corporate registrations and employee enrollment.
Unified Pension Scheme (UPS)
The Unified Pension Scheme (UPS) was introduced by the Central Government on 24 August 2024, set to be implemented on 1 April 2025. Its primary objective is to benefit around 23 lakh Central Government employees. Key aspects of UPS include:
- Pension Structure: Offers a stable pension system providing financial security for retirees.
- Eligibility for NPS Subscribers: Current NPS subscribers can transition to UPS, with the choice being definitive.
- Pension Calculation: The pension amount consists of:
- 50% of the average basic pay after 25 years of service
- A minimum pension of ₹10,000 per month for individuals with at least 10 years of service.
- Contribution Rates:
- Employee contribution: 10%
- Employer contribution: 18.5%
- State Adoption: Maharashtra is the first state to implement UPS, potentially impacting over 90 lakh employees if adopted nationwide.
- Key Benefits: Includes inflation-adjusted pensions, a guaranteed minimum pension, and a lump sum payment upon retirement.
UPS contrasts with NPS by providing a fixed pension and family pension. In comparison, NPS offers market-linked returns without guaranteed benefits.
Conclusion
The provided calculator is intended to compare projected pensions and corpus values between NPS and UPS based on current information. This tool serves solely as a mathematical aid to estimate future pension and corpus value under both schemes. Subscribers are encouraged to consider their personal circumstances and preferences to make an informed choice between these retirement planning options.