Comparison of benefits between NPS and UPS.pptx

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 UPS is implemented w.e.f April 1,
2025.
 Existing NPS subscribers have three
months to decide whether to
switch to UPS. (June 30, 2025)
Unified Pension Scheme

What are key feature of NPS ?
 Contributory pension - Employee and
Government contribute, which
remains invested for the entire
service life of the employee.
 Employee contributes 10% and
Government contributes 14% (w.e.f.
01/04/2019). It was 10% before this
date.
Department of Expenditure 3

Key feature of NPS
 After retirement, minimum annuity
investment is 40% of corpus.
 One can withdraw 60% of corpus and
invest own its own or, one can invest
the entire sum in annuity.
 The invested corpus in annuity to
generate regular return as pension.

How does NPS work?
 Default pattern of investment- 100%
money are invested in Government
Securities. Three fund houses
manage – SBI, LIC & UTI at
predetermined ratio.
 Employees wishing to get exposure
to equity market can choose for LC
25 (max 25% equity exposure) or LC
50 (max 50% equity exposure).

Problems with NPS
 Uncertainty: Even if we assume Indian
economy would do well in the coming
decades; no one knows what would be the
rate of “annuity return” after two or three
decades.
 Hence, this makes the quantum of pension
very uncertain.

Problems with NPS
 No inflation adjustment: Annuity, once
fixed, would remain same for the entire
life period of the employee and his/her
spouse.
 Even at moderate level of inflation (say, 4
or 5%), a sum fixed at the age of 60 would
certainly become meager, as far as
purchasing power is concerned, when s/he
turns 80 or 90.

 No assured pension under NPS;
 No inflation indexation (Dearness
Relief) under NPS;
 No family pension under NPS;
 Pension under NPS is market linked;
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Why UPS implemented by
Government

How UPS attempt to solve
them-
 UPS is also contributory in nature: But,
Government gives the guarantee of paying
the shortfall, if the return from annuity
falls short of normal pension amount. This
removes the uncertainty.
 Inflation protection: UPS would offer
Dearness Relief at par with DA.

It gets even better..
 Family pension @ 60% of normal pension to
the spouse once any one of us leaves us;
 Dearness relief will also be available on
the assured payout and family payout, as
the case may be.

It gets even better..
 UPS would also give back one time
lumpsum of 10% of last pay (Basic
+DA) for every six months of
completed service on retirement;
 This lump sum payment will not
affect the quantum of assured
payout.

Key features of UPS
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Assured Payout : 50 % of the average basic pay of last 12
months, prior to superannuation (minimum service of 25
years);
Proportionate payout for ‘lesser service period’ (minimum of
10 years of service);
1
Assured Minimum Payout :
@ 10,000/- per month on superannuation after minimum 10
years of service
3
2
Assured Family Payout :
@60% of pension of the employee immediately before
her/his demise to legally wedded spouse;

Key features of UPS
13
Inflation Indexation:
 In addition to pension ‘Dearness Relief’, similar as in case
of serving employees;
4
Lump-Sum payment at superannuation in addition to
gratuity & Leave Encashment:
 1/10th of monthly salary (Basic + DA) on the date of
superannuation, for every completed 6 months of service;
 This payment will not reduce the quantum of pension;
5

How does UPS work ?
 Same manner as in NPS.
 Corpus under UPS will comprise of two fund-
 Individual Corpus: Employees contribution will be
10% of (Basic pay + DA) + Matching Government
contribution @10% of (Basic + DA).
 Pool Corpus: Government will make additional
contribution of 8.5% of (Basic+DA) of all employees,
who have chosen UPS, to the pool corpus, on
aggregate basis.
 The additional contribution is for supporting assured
payouts under UPS.

Investment of Individual Corpus
 Choice of Pension Fund: A UPS subscriber may choose any one of
the pension fund(s) including default option and shall have an option
to change the pension fund once in a year.
 Choice of Investment pattern: A UPS subscriber exercising choice of
pension fund other than default option, shall choose any one of the
following:
 Option to invest 100% of the funds in Government securities; or
 Options of any one of the following three Life Cycle based
schemes:
a) Conservative Life Cycle Fund with maximum exposure to
equity capped at 25% - LC-25; or
b) Moderate Life Cycle Fund with maximum exposure to equity
capped at 50% - LC-50.
c) Aggressive Life Cycle Fund with maximum exposure to equity
capped at 75% - LC-75.

Any Issues With UPS?
 No provision has been kept for revision of
basic pension with pay commissions. This
is a fund based annuity generation
approach.
 As a result, an officer retiring in 2035
(before 9th CPC) and an officer retiring in
2036 (after 9th CPC with assumed fitment
factor of 2) would have a huge difference
in pension.

Any Issues With UPS?
 Lump sum payment post retirement
is very low (10% of last pay for every
six months of completed service). A
small fraction of own contribution is
returned back (Rs. 40 to 60 lakhs).
 OPS employees enjoyed pension
without paying anything.

No Pension in UPS in case-
 Pension shall not be available in
case of removal or dismissal or
resignation.

NPS have any advantage over
UPS?
 60% corpus of NPS fund is owned by
the employee. He can invest the
fund as per his own choice.
 UPS returns back only a tiny portion
of the accumulated fund (Say, 6-7
Crore Vs. 40-50 lakhs).

NPS have any advantage over
UPS?
 An employee can retire anytime
without consequences in NPS.
 In UPS, pension starts only after
normal superannuation age.
 Exit from service would be difficult
for UPS optees.

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When pension will start in UPS ?
• Assured Payout shall be available –
a) In case of superannuation of employee from the date of
superannuation. (minimum 10 years service);
b) In case of voluntary retirement from the date such
employee would have superannuated, if the service period
had continued to superannuation. (service of 25 years, ).
c) In case of retiring under FR 56 (j) from the date of such
retirement; and

Investment of Pool Corpus
Investment of Pool Corpus
In pension funds determined by
Government;
Funds will be invested in accordance with
investment pattern approved by
Government and investment guidelines of
PFRDA;

Concept of Benchmark Corpus – 1/2
 For each employee covered under NPS who has exercised UPS, a
‘benchmark corpus’ value shall be computed, in such manner as may
be determined by PFRDA, with the following assumptions:
 Regular receipt of applicable contributions for both the employees
and the employer for each month of qualifying service;
 In case of missing contributions, an appropriate value, to be
determined by the PFRDA, shall be assigned; and
 Investment of such contributions is made as per the ‘default
pattern’ of investment, as defined by the PFRDA.
 The value or units in the individual corpus with investment choices of
the employee shall be informed to such employee on a periodic basis.
 The value or units of the benchmark corpus corresponding to the
employee, will also be informed to the employee.

Concept of Benchmark Corpus – 2/2
 On superannuation or retirement, the employee under UPS shall authorize
transfer of the value or units in the individual corpus to the pool corpus,
equivalent to the value or units of the benchmark corpus for authorization
of Assured Payout.
 In case the value or units of individual corpus is less than value or units of
the benchmark corpus, the employee will have an option to arrange for
additional contribution to meet this gap.
 In case the value or units of individual corpus is more than the value or
units of the benchmark corpus, the employee shall authorize transfer of
value or units equivalent to the benchmark corpus and the balance amount
in the individual corpus will be credited to the employee.
 In case the values or units transferred by the employee from the individual
corpus to the pool corpus, is less than the value or units of the benchmark
corpus, payout proportionate to the assured payout shall be authorized.

Illustration 1: Base case
 The 12 monthly average basic pay before
superannuation of an employee is Rs 45,000 (P)
 The employee has a qualifying service (based on
the number of months of contribution) of 25
years (300 months) or more (Q)
 All contributions of the employee have been
credited regularly and there are no missing
credits
 ‘Default pattern’ of investment
 No partial withdrawals
 The value of the individual corpus of the
employee at retirement is Rs 50,00,000/-
(10,000 units) (IC)
 The value of the benchmark corpus in this case
should also be Rs 50,00,000/- (10,000 units) (BC)
 Assured Payout (A) = (½ of P) x
(Q/300) x (IC/BC)
 with the condition that;
 If Q exceeds 300, it will be taken
as 300
 If (P/2) x Q/300 is less than
10,000, it will be taken as 10,000
 Assured Payout (A) = (45,000/2) x
(300/300) x (50,00,000/50,00,000)
 = Rs 22,500/- plus applicable
Dearness Relief (DR)

Illustration 2: QS < 25 years
superannuation of an employee is Rs 45,000/-
(P)
years (180 months) (Q)
credits
 No partial withdrawals
employee at retirement is Rs 30,00,000/- (8,000
units) (IC)
should also be Rs 30,00,000/- (8,000 units) (BC)
(Q/300) x (IC/BC)
 If Q exceeds 300, it will be taken as
300
 If (P/2) x Q/300 is less than 10,000,
it will be taken as 10,000
(180/300) x (30,00,000/30,00,000)
 = Rs 13,500 plus applicable

Illustration 3: QS < 25 years & Partial Withdrawal
superannuation of an employee is Rs 45,000/-
(P)
 The employee has a qualifying service (based
on the number of months of contribution) of 10
years (120 months) (Q)
credits
 Partial withdrawal
employee at retirement is Rs 22,00,000/-
(8,800 units) (IC)
is Rs 25,00,000/- (10,000 units) (BC)
(Q/300) x (IC/BC)
as 300
(120/300) x (22,00,000/25,00,000)
 = Rs 7,920 plus applicable Dearness
Relief (DR)

Illustration 4: IC > BC
credits
 The employee opted for investment choices in
the IC and the value of the IC is higher than BC
 No partial withdrawal
employee at retirement is Rs 55,00,000 (11,000
units) (IC)
 The value of the benchmark corpus in this case is
Rs 50,00,000 (10,000 units) (BC)
 Assured Payout (A) = (½ of P) x (Q/300) x
(IC/BC)
 If Q exceeds 300, it will be taken as 300
 If (P/2) x Q/300 is less than 10,000, it
will be taken as 10,000
 Assured Payout (A) = (45,000/2) x (300/300)
x (50,00,000/50,00,000)
 = Rs 22,500 plus applicable Dearness Relief
(DR)
 Excess value of IC vis-à-vis BC (i.e.
Rs.5,00,000) will be credited in employee’s
designated bank account at retirement

Illustration 5: IC < BC & No recoupment
credits
 The employee opted for investment choices in
the IC and the value of the IC is lower than BC
employee at retirement is Rs 45,00,000 (9,000
units) (IC)
 The value of the benchmark corpus in this case is
Rs 50,00,000 (10,000 units) (BC)
 Employee does not recoup the shortfall
 Assured Payout (A) = (½ of P) x (Q/300)
x (IC/BC)
 If Q exceeds 300, it will be taken as
300
(300/300) x (45,00,000/50,00,000)
 = Rs 20,250 plus applicable Dearness
Relief (DR)

Illustration 6: IC < BC & Partial recoupment
 The employee has a qualifying service (based on the
number of months of contribution) of 25 years (300
months) or more (Q)
 All contributions of the employee have been credited
regularly and there are no missing credits
 The employee opted for investment choices in the IC
and the value of the IC is lower than BC
 The value of the individual corpus of the employee
at retirement is Rs 45,00,000 (9,000 units) (IC)
 The value of the benchmark corpus in this case is Rs
50,00,000 (10,000 units) (BC)
 Employee partially recoups (Rs. 2,50,000/-) the
shortfall
(Q/300) x (IC/BC)
as 300
(300/300) x (47,50,000/50,00,000)
 = Rs 21,375 plus applicable

NPS Vs UPS
 UPS provides a
guaranteed and
fixed pension;
 UPS is suitable for
those seeking a
stable and
predictable income
after retirement;
 NPS offers market-
linked returns that
can vary;
 NPS is preferred by
those who want
potential higher
returns;

32
Comparison of OPS, NPS & UPS
Department of Expenditure
Sl.
No.
Elements of
Pension Scheme
OPS Existing NPS UPS
1. Funded Scheme X ü ü
2.
Contribution
based scheme
X
ü
(10% of Basic + DA by
employee and 10% of Basic
+ DA by government from
1.1.2004 to 31.03.2019
14% of pay + DA by
government since 1.4.2019)
ü
PRAN based Pension
corpus: 10% of Basic +
DA by employee and 10%
of Basic + DA by
government
Separate corpus: 8.5% of
pay + DA by government
3.
Defined
Contribution
(DC) or Defined
Benefit (DB)
Purely DB Purely DC
Hybrid
(DC with elements of DB)

33
Sl. No. Elements of Pension
Scheme
4.
Amount of Defined
Pension
50% of last drawn
basic pay X
50% of last 12 months’ average
basic pay.
5.
Qualifying service
for full defined
pension
No Condition since
2006. Earlier 33 years’
service
X
(no concept of full
pension)
25 years’ eligible service
(Pro-rata for 10-25 years’ service)
6.
Types of retirements
on which DB Benefits
available
Superannuation after 10
years’ service
VR after 20 years’
service
X
(no DB component)
Superannuation after 10 years’
service.
VR after 25 years. Assured
pension to commence from the
date of deemed superannuation,
had the employee continued in
service until then .

34
Sl.
No.
Elements of
Pension Scheme
7.
Minimum
guaranteed
pension
Rs. 9000/- pm plus
applicable rate of
DR
X Rs. 10,000/- plus applicable
rate of DR
8.
Commutation of
pension
Up to 40% of the
pension restored
after 15 years
Upto 60% of PRAN based
pension corpus can be
withdrawn
Upto 60% of PRAN based
pension can be
withdrawn.
The assured pension will
reduce correspondingly.
9. Dearness Relief
ü X ü

35
Sl.
No.
Elements of
Pension Scheme
10. Family Pension
@60 % of the
pension
Family Annuity, if chosen by
employee
@ 60% of the pension
11.
“ Family” for
family Pension
Spouse, dependent
children, parents as
per the rule
Spouse in case annuity so
chosen. Dependent
Parents can also be
covered
Spouse only
12. GPF
Amount in GPF
accumulated based
on personal
contribution during
service
X X
13.
Lump-Sum
Payment
X X
1/10th
of emoluments (Basic+
DA) on superannuation for
every six month completed
service

Switching from NPS to UPS
 If employee opt for UPS, such option
once exercised, shall be final.
 Once an employee exercises the UPS
option, the outstanding NPS corpus in
the employees PRAN shall be transferred
to the employee’s individual corpus
under the UPS.

Comparison of benefits between NPS and UPS.pptx

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