UPS OR NPS: WHICH ONE SHOULD YOU CHOOSE?

The government has announced the Unified Pension Scheme for central government employees, who will get a one-time option to switch to it. We help you decode which one you should choose between UPS and NPS

- Versha Jain

About a month after the Union Budget was announced in July 2024, the government approved the new Unified Pension Scheme (UPS) for central government employees, as an alternative to the National Pension System (NPS).

Around 20 years ago, when NPS replaced the Old Pension Scheme (OPS) in January 2004, it faced a lot of opposition. NPS allowed the transition from a defined to a market-linked benefit scheme, but the fact that the returns couldn't be guaranteed became a bone of contention. Its adoption, though, is considered a fiscally prudent move.

Initially, all states except West Bengal adopted NPS, but several state governments, such as Rajasthan and Himachal Pradesh later returned to OPS due to popular demand despite the burden on the treasury.

The Bharatiya Janata Party's (BJP)led government stuck to its guns on NPS. The announcement of UPS is being seen as a climbdown for the government after the June 4 results, which saw the ruling BJP's Lok Sabha tally reduced to 240 from 303, apparently due to discontent over issues like NPS, unemployment and price rise.

The new UPS is something in between OPS and NPS. For instance, like OPS, it is a defined benefit plan where the amount of pension is fixed as a percentage of the last salary. On the other hand, like NPS, the employee will need to contribute towards UPS. Let's find out more about the scheme and how it compares with NPS and OPS.

WHAT DOES UPS OFFER?

While the scheme's general outline has been made public, some vital details are yet to be announced and officially notified. The deadline to implement the scheme is April 1, 2025, and will be applied retroactively to allow those interested in switching to UPS. All government employees will get a one-time option to switch to the new plan.