UPS vs NPS: Which Pension Scheme Is Better for You? Here’s What You Need to Know

Updated: 18-06-2025, 01.07 PM

With the start of the new financial year, big changes are underway in India’s pension system. Beginning April 1, 2025, the government has officially rolled out the Unified Pension Scheme (UPS), offering a major alternative to the current National Pension System (NPS) for central government employees.

NPS

Announced earlier this year by the Pension Fund Regulatory and Development Authority (PFRDA), the UPS is specifically designed to provide employees with stable, fixed pensions, addressing long-standing concerns over the market-linked nature of NPS. But with both options now on the table, which pension scheme is better for you? Let’s break it down.

What Is the Unified Pension Scheme (UPS)?

Introduced by the government on January 24, 2025, the Unified Pension Scheme (UPS) is modeled after elements of the Old Pension Scheme (OPS), offering a guaranteed minimum pension after retirement.

Key features of UPS:

For central government employees already enrolled under NPS
Fixed pension: 50% of the average basic salary of the last 12 months before retirement
Requires a minimum of 25 years of service
Includes cost-of-living adjustments (inflation-linked increases)
Minimum guaranteed pension of ₹10,000 per month after 10 years of service
Offers both fixed pension and lump sum payout

What Is the National Pension System (NPS)?

Launched in 2004 under the Atal Bihari Vajpayee government, NPS is a market-linked pension system that replaced the unsustainable Old Pension Scheme.

Key features of NPS:

Contributions from both employees and government are invested in market-linked funds
Pension payout depends on market performance
After retirement, 60% of the corpus can be withdrawn tax-free; the remaining 40% must be used to purchase an annuity
No guaranteed pension — benefits may fluctuate based on returns

Originally designed to ease the fiscal burden on the government, NPS has faced criticism from employees for its lack of income security post-retirement.

Key Differences: UPS vs NPS

Feature	Unified Pension Scheme (UPS)	National Pension System (NPS)
Pension Type	Fixed, guaranteed pension	Market-linked, fluctuates
Employee Contribution	10% of salary	10% of salary
Government Contribution	18.5% of salary	14% of salary
Pension Guarantee	Yes — 50% of last 12-month average salary	No guarantee
Family Pension	Included	No fixed provision
Market Dependency	None	Dependent on market returns
Minimum Pension	₹10,000 after 10 years	No minimum pension
Lump Sum Benefit	After 25 years of service	Partial (60% after retirement)

Who Should Opt for UPS?

The new Unified Pension Scheme is an ideal choice for:

Employees seeking stable, guaranteed post-retirement income
Those concerned about market volatility affecting their pension
Families looking for consistent financial security through guaranteed family pension

On the other hand, NPS still offers potential for higher returns for risk-tolerant employees who are comfortable with market-linked investments.

Final Takeaway

For central government employees, UPS brings the reassurance of a predictable retirement income — something NPS could not guarantee. The higher government contribution and inflation-linked pension under UPS provide additional financial comfort.

However, those looking for potentially higher market-driven returns might still find NPS more appealing — though with greater risk. Ultimately, the choice between UPS and NPS depends on your individual priorities: guaranteed stability vs. market opportunity.

Author Profile

Kuldeep Singh Chundawat: My name is Kuldeep Singh Chundawat. I am an experienced content writer with several years of expertise in the field. Currently, I contribute to Daily Kiran, creating engaging and informative content across a variety of categories including technology, health, travel, education, and automobiles. My goal is to deliver accurate, insightful, and captivating information through my words to help readers stay informed and empowered.