What to expect after switching from NPS to UPS post-deadline of November 30?

What to expect after switching from NPS to UPS?

The Centre has fixed November 30 as the deadline for its employees under the National Pension Scheme (NPS) to switch to Unified Pension Scheme (UPS). The government has assured to carry-forward every return on investment made by subscribers of NPS during their switch to UPS.

The major difference between the two government-sponsored employee-linked pension schemes is that NPS provides market-linked returns, whereas UPS is a guaranteed retirement scheme. Dearness relief is another differentiator explicitly available under UPS, as well as payout to the spouse is paid at 60 percent of the average basic pay on a monthly basis upon death of the subscriber.

The two pension schemes also differ on contributions made by the government. Under NPS, the government adds 14 percent of the employee’s basic pay and dearness allowance (DA). Whereas, under UPS, the government contributes 10% of employee’s basic pay and DA as well as another 8.5 percent of total employees’ corpus under the scheme. In both schemes, employees contribute 10 percent of their basic pay and DA.

Meanwhile, other benefits like tax exemption and gratuity remain the same for UPS subscribers as it was under NPS.

Remember, it is not mandatory for central government employees under NPS to opt for UPS. Secondly, only those employees who have completed 10 years of service are eligible to switch to UPS. Thirdly, even those central government employees and pensioners opting for UPS now can exercise one-way, one-time switch to NPS at a later date.

Now, let’s compare features of NPS and UPS employee-linked pension schemes for central government employees.

Meanwhile, the government has assured to carry-forward every return on investment made by subscribers of NPS during their switch to UPS.

“The 14% government contribution made on NPS will be restored, along with the growth that was accumulated during the subscriber’s contribution to the scheme will be credited back to the UPS account. There will be no financial loss, if the subscribers choose to switch back to NPS from UPS,” said Sumeet Kaur Kapoor, Executive Director of pension fund regulatory and development authority of India, in a recent interview posted by PFRDA on X, formerly Twitter.

According to Kapoor, the government chose to implement UPS after considering various factors, particularly because NPS does not guarantee assured returns to pensioners.

“NPS has been giving a very good market return; however, the feedback from the ground was that there is no inflation indexation. Secondly, there is uncertainty and volatility in the market, making pension payout under NPS uncertain. So subscribers were not comfortable with it. In order to deal with these issues, the central government decided to come with UPS,” said Kapoor.

She outlined major benefits under the UPS, as follows:

50% average basic payout of 12 months. Provided the subscribers have completed 25 years of service, they will receive the payout amount of Rs 10,000 per month, and on proportionate basis for those retired employees completing service between 10 and 25 years.

Dearness relief. With NPS being a market-linked product, dearness relief is explicitly provided under the UPS scheme.

Spouse to get 60% of last assured payout upon subscriber’s death. Under UPS, a family pension of 60 percent of the last drawn admissible payout drawn by the subscriber is paid to the spouse. Whereas, under NPS a lump sum amount is paid if the balance is below Rs 5 lakh, but if it is more, then the beneficiaries are required to contribute 80 percent towards annuity and 20 percent is distributed on lump sum.

Furthermore, even NPS subscribers, who have retired on or before March 31, 2025, can apply for UPS. “They will get a lump sum benefit, monthly top up amount, dearness relief, and the family also become eligible to the 60 percent payout as well as arrears with added interest,” said Kapoor.