UPS or NPS: what works best for central govt employees?

The right choice depends on tenure, income needs and how much risk you're willing to take

- Aprajita Sharma

A big shift is underway for most central government employees-they need to choose between two pension systems-one promising a fixed, inflation-linked payout for life, and the other leaves room for market returns and flexibility.

The Unified Pension Scheme (UPS), rolled out on 1 April, brings back the defined benefit model. The National Pension System (NPS) sticks to its market-linked, contribution-based design.

Your choice will depend on service years, retirement goals, and risk appetite. UPS guarantees a lifelong pension, with 60% for your spouse after your death. NPS lets you withdraw 60% of the corpus tax-free and use 40% for an annuity to get pension. You can invest the lump sum for regular income. But, how do they compare-and which suits you better? Let's find out.

How UPS works In UPS, 20% of basic pay plus dearness allowance (DA) goes into your corpus-10% from you and 10% from the government. Additionally, the Centre contributes 8.5% to a pool corpus that ensures guaranteed pension. In NPS, your 10% contribution is matched with 14% from the Centre, taking it to 24%.

Both NPS and UPS offer four investment options. The default limits equity exposure to 15% (to be 25%), with the rest in fixed-income instruments. The others are: 100% in government securities; lifecycle-50 with 50% equity; and lifecycle-25 with 25% equity.