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Calculator: UPS vs. NPS - which is better?

Posted on 26 Aug 2024 • Updated on: 24 Mar 2025
Author: Sayan Sircar

Tags: NPS ; Pension ; Free Planning Tool

18 mins read
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This article shows how to determine if an NPS subscriber should switch to the newly announced Unified Pension Scheme from April 2025.

Calculator: UPS vs. NPS - which is better?

Originally published: 26-Aug-2024

Updated: 24-March-2025 - updated with details from Gazette Notification

📚 Table of Contents

What are the features of the Unified Pension Scheme?
Brief timeline of UPS, NPS and OPS
How much monthly pension will you get from UPS?
How do we know if UPS is better than NPS?
How to calculate if an NPS subscriber should switch to the UPS?

What are the features of the Unified Pension Scheme?

The Unified Pension Scheme (UPS) was announced on 25th August 2024 to “improve the National Pension System (NPS) for Central Government employees.” UPS offers:

A pension of at least 50% of the last 12 months’ salary (basic and dearness allowance) at the time of retirement. The minimum pension amount is ₹10,000/month.
The spouse will receive 60% of the pension upon the death of the original employee.
A lump sum based on the DA will be provided at the time of retirement.
The employee will contribute 10% of basic + DA (same as NPS), while the government will contribute 18.5% (up from the current 14% in the case of NPS). Here 10% is the matching contribution and 8.5% goes to the pool corpus
A minimum of 25 years of total service is required (otherwise, a pro-rata pension starts from 10 years).
UPS is for Central Government employees only.
Opting into UPS, by stopping NPS, is a choice for the employee from 1st April 2025 onwards. An employee can choose to remain in NPS if they prefer.

The last point, since UPS is opt-in while NPS is mandatory, requires some calculation to determine if UPS is better than NPS.

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Brief timeline of UPS, NPS and OPS

Prior to January 1, 2004: The Old Pension Scheme (OPS), an unfunded, non-contributory defined benefit scheme, was in place. Government employees received 50% of their last drawn salary as a monthly pension upon retirement.
1 January 2004: The National Pension System (NPS) was introduced for government employees who joined service on or after this date. This is a market-linked, defined contribution scheme where benefits depend on market performance.
2023: Several states (Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh) announced reverting from NPS to OPS, leading to concerns from the Reserve Bank of India (RBI) about their fiscal health.
25 August 2024: The Union Cabinet, chaired by Prime Minister Shri Narendra Modi, approves the benefits of the Unified Pension Scheme (UPS).
24 January 2025: The Finance Ministry officially notifies the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for central government employees who joined on or after January 1, 2004. The effective date is set for April 1, 2025.
19 March 2025: Gazette Notification issued titled: “PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (OPERATIONALISATION OF UNIFIED PENSION SCHEME UNDER NATIONAL PENSION SYSTEM) REGULATIONS, 2025”. We have covered that here: Which are the important points regarding Unified Pension Scheme that you must keep in mind as per the final March 2025 gazette notification?
1 April 2025: The Unified Pension Scheme (UPS) starts.
Post April 1, 2025: Government employees who are part of the NPS will have the option to switch to the UPS and those already superannuated under NPS are also eligible for this benefit.

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How much monthly pension will you get from UPS?

You can use this calculator to find out.

Unified Pension Scheme Monthly Amount Calculator

Get a sample retirement plan by email:

Unified Pension Scheme Lump Sum Calculator
Learn more about UPS here: Calculator: UPS vs. NPS - which is better?

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How do we know if UPS is better than NPS?

We will follow these rules:

The retirement corpus must support inflation indexing throughout the entirety of retirement: any amount not coming from a pension (UPS or NPS) has to come from the rest of the portfolio.
The entire portfolio must support the other non-retirement goals of the investor, like house purchase, children’s college education, etc.
While having a guaranteed pension is good, it should not alter the risk-return characteristics of the current portfolio.
When the NPS subscriber switches to the UPS, their NPS corpus will be marked as zero.

The best option (NPS or UPS) is the one that, while following these rules, leads to a lower investment amount today. It is important to understand that UPS shifts most of the market risk in retirement from the retiree to the government since:

The minimum pension amount in UPS depends on the last-drawn salary.
The minimum pension amount in NPS depends on the market performance of the NPS corpus.

How to calculate if an NPS subscriber should switch to the UPS?

The Arthgyaan goal-based investing calculator shows how to determine if it makes sense to switch to the UPS from NPS. We have a sheet “pension-in-retirement” that allows you to see which is better: no pension (i.e., NPS not started yet), NPS, or UPS.

We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

Here are some case studies using the tool (click the image below)

Case Studies using Goal-based-investing tool playlist

We will assume that the investor is a 38-year-old Central Government employee with ₹25 lakhs in NPS and another ₹25 lakhs invested in other assets. The employee has goals for the family and child:

Goal	Amount (₹ lakhs)	Years
Family Goals
Car	7	3
Foreign Vacation	5	5
Child Goals
School admission	2	1
School trip	2	9
UG: Admission + Year 1	9	14
UG: Year 2	7	15
UG: Year 3	7	16
UG: Industrial Training + Year 4	8	17
PG: Admission + Year 1	15	19
PG: Year 2	10	20
Down-payment of home	30	21
Marriage	15	27

Apart from these, the employee is targeting retirement starting 22 years from now with an annual expense of ₹5 lakhs (see “expenses-in-retirement” tab) in today’s money.

Retirement expense estimation

Other assumptions are as follows:

Item	Assumption
Inflation	7%
SIP Increment	10%
Years to retirement	22
Average Equity return post-tax	11%
Average Debt return post-tax	4%
Earning years left	22
Years in retirement	40

Base case: without pension

Case Without Pension For NPS vs. UPS

Case with NPS

Case With NPS For NPS vs. UPS

Case with UPS

Case With UPS For NPS vs. UPS

In the base case, we do not have NPS at all, and the entire portfolio is held outside NPS. Then we add ₹25 lakhs of NPS and later switch to UPS. To make an apples-to-apples comparison, we ensure that the NPS and UPS pensions (starting value, as the UPS one increases over time) are the same:

Case with NPS: Here, we have ₹25 lakhs in NPS and the rest outside NPS. Please see the “assets” sheet to modify the numbers.
Case after switching from NPS to UPS: Here, the corpus drops from ₹50 lakhs to ₹25 lakhs since the ₹25 lakhs in NPS is converted to UPS.

The summary of these cases is shown below:

Metric	Base	UPS	NPS
Target retirement corpus (lakhs)	766.13	766.13	766.13
Cost of goals today (lakhs)	317.00	282.71	327.55
Present corpus (lakhs)	50.00	25.00	50.00
Term Insurance cover (lakhs)	430.00	421.00	446.00
Monthly total SIP	95,224	96,029	99,334
Retirement-only SIP	56,304	45,874	60,414
Other goal SIP	38,920	50,155	38,920

Here

The base case is better than the NPS case since the NPS annuity is not inflation-indexed, and purchasing the annuity at the time of retirement marks down at least 40% of the NPS corpus as an annuity, with the rest then invested.
The capital allocated to the other goals will also change based on the choice of retirement product you choose
SIP amount for non-retirement goals change considerably depending on the option chosen

We cannot generalise the cases as it will depend on the current value of the NPS corpus and the other goals to be met by the portfolio.

“There ain’t no such thing as a free lunch” is an expression that speaks to the idea that everything ultimately has a cost and nothing is truly free. - Investopedia

As prudent observers of capital markets, it should be considered risky for the government to assume a considerable amount of market risk related to pension payments. Any NPS subscriber looking to switch to the UPS should understand that at the end of the day, any government scheme carries a significant amount of policy-change risk. Given that retirement is a multi-decade journey, and the government controls inflation and interest rates to a certain extent, a guaranteed pension scheme can easily turn sour for retirees depending on market performance.

Frequently Asked Questions (FAQs)

What is the Unified Pension Scheme (UPS), and when will it be implemented?

The Unified Pension Scheme (UPS) is a new pension scheme being introduced by the Indian government for central government employees who joined service on or after January 1, 2004. It serves as an alternative to the National Pension System (NPS). The UPS will be implemented from April 1, 2025.

How does UPS differ from the existing National Pension System (NPS)?

UPS differs from NPS in several key aspects. Firstly, UPS is exclusively for government employees, while NPS is available to both government and private sector employees. Secondly, UPS offers a guaranteed minimum pension of ₹10,000 after 10 years of service, with a fixed payout of 50% of the average basic pay of the last 12 months before retirement after 25 years of service, while NPS pension is market-linked with no guaranteed amount. In UPS, the government contributes 18.5% of the basic pay plus Dearness Allowance (DA), while in NPS, it's 14%. UPS provides medical benefits and is linked to Dearness Relief (DR) for inflation adjustment, which NPS lacks. Furthermore, UPS provides a lump sum payment in addition to gratuity upon retirement, unlike NPS. Finally, employees who chose NPS cannot later switch to UPS.

What are the key benefits of the Unified Pension Scheme (UPS)?

Key benefits of the UPS include: a guaranteed minimum pension of ₹10,000 per month after 10 years of service; an assured pension of 50% of the average basic pay of the last 12 months before retirement, after 25 years of service; inflation-linked pension through Dearness Relief (DR); an assured family pension of 60% of the employee's pension; medical facilities; and a lump sum payment at superannuation.

What is the contribution structure under the UPS?

Under UPS, employees contribute 10% of their basic pay plus Dearness Allowance (DA). The government contributes 18.5% of the employee's basic pay plus DA. This contribution is split into two funds: one, an individual corpus with employee and matching government contribution and two, a pool corpus with the remaining government contribution. The employee can only make investment decisions for their individual corpus.

How does the UPS handle inflation and dearness allowance (DA)?

UPS offers inflation protection by linking pensions to Dearness Relief (DR). The pension will be adjusted according to the All India Consumer Price Index for Industrial Workers (AICPI-IW), ensuring that the pension keeps pace with the rising cost of living. This benefit is not available under NPS.

Can employees currently enrolled in NPS switch to UPS?

Government employees who are currently enrolled in NPS will have the option to switch to UPS, however, those who have already chosen UPS cannot switch back to NPS again. The new scheme is also available for those who have superannuated from the NPS before the implementation date of UPS. Such employees will be paid arrears with interest as per the Public Provident Fund rates.

What happens to the pension payout in the event of an employee's death under UPS?

In the event of the death of the pensioner, the legally wedded spouse will be entitled to a family pension, calculated as 60% of the pension that was admissible to the employee before their demise. This family pension is also indexed to inflation via Dearness Relief.

How should government employees decide between UPS and NPS?

The decision depends on individual circumstances and risk tolerance. Employees who prefer a guaranteed pension with inflation protection and medical benefits might find UPS more suitable, especially if they have less than 10-20 years of service left. Those with equity market knowledge and a longer service period could consider NPS for potentially higher returns. However, even with NPS, it's necessary to check if the annuity plus systematic withdrawals from the remaining corpus will match the kind of pension that can be expected from UPS. Personal circumstances and a holistic view, including other investments, need to be considered along with a careful use of a calculator which considers all the conditions and variables. The Arthgyaan goal-based investing calculator can help you calculate which is better: UPS or NPS.

Can government employees switch back to NPS after choosing UPS?

Employees can choose to switch to UPS or remain in NPS. Once UPS is chosen then they cannot come back to NPS

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