NPS vs UPS : Which Scheme Is Better For You?

Pension for the central government employees used to be a simple issue before 2004.

• You retire after turning 60.
• Get a monthly pension equal to 50% of your last pay.
• Get protection from inflation by means of dearness relief every 6 months.

In short, government employees had zero-tension about income after retirement. Government used to take care of the ex-employees by paying from its pocket.

Everything changed in 2004...

As they say, all good things do come to an end someday...

This system of tension free pension for central government employees ended when the Government introduced the National Pension System (NPS) from 1st January, 2004.

What changed?

1. The government relieved itself from paying monthly pension to retired employees.
2. Instead, it started to build a retirement fund (NPS Tier 1) for every employee during his/her service life.
3. The employee and government both contributed every month in this fund. Employee's contribution was 10% of salary, government's contribution was 14%.

The premise was that this fund would grow to a substantial amount with regular compounding during the employees service life.

After retirement, he could withdraw 60% of it as a lumpsum. The rest 40% had to be mandatorily saved in an annuity scheme (fancy name for monthly income scheme).

So basically,

For the sake of fiscal prudence, the government absolved itself from the liability of offering a tension free retired life to the employees. They had to plan and save for it right from the day they joined their service life.

Even that was fine until UPS happened

Cut to August 2024.

20 years had passed since NPS was started. Employees had taught themselves to find happiness in NPS.

A long running bull market in equities along with in-built difficulties in withdrawing money helped their NPS tier-1 accounts to grow handsomely. NPS subscribers like me, had started dreaming about saving up a respectable amount of money for our retired life.

But the government suddenly announced the Unified Pension scheme (UPS).

This new scheme has the UPS of having a minimum guaranteed pension (50% of last 12 months of average pay) plus the assurance of dearness relief (D.R) every 6 months.

Existing NPS subscribers had a one time chance to opt into UPS or let it go forever.

It was simple...

The government is offering us a lollipop. Should we suck?

Professor Pattu of FreeFincal has made an excellent comment -

Anyway...

Everyone government employee (who joined after 2004) needs to make this choice. I have to do it for myself as well.

So, instead of relying on others' opinion, I created the following 2 tools for myself -

1. A ChatGPT based chatbot (RAG) trained specifically on NPS and UPS.
2. A Google Sheet calculator.

I already had the idea that NPS was better for me. But how much better? These tools showed me an approximate value.

You can use them too

I've made them available for everyone for free.

Here are the links -

• AI Chatbot
• Google sheet calculator (Copy in your account before using)

Use them to decide if you'll accept the lollipop (UPS) or let it pass.