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NPS or UPS: Which Pension Scheme is More Beneficial for Govt Employees?

Nitin Narkhede | Answer |Ask -Follow

MF, PF Expert - Answered on Sep 11, 2024

Nitin Narkhede, founder of the Prosperity Lifestyle Hub, is a certified financial advisor with eight years of experience in helping clients design and implement comprehensive financial life plans.
As a mentor, Nitin has trained over 1,000 individuals, many of whom have seen remarkable financial transformations.
Nitin holds various certifications including the Association Of Mutual Funds in India (AMFI), the Insurance Regulatory and Development Authority and accreditations from several insurance and mutual fund aggregators.
He is a mechanical engineer from the J T Mahajan College, Jalgaon, with 34 years of experience of working with MNCs like Skoda Auto India, Volkswagen India and ThyssenKrupp Electrical Steel India.... more

Asked by Anonymous - Aug 26, 2024Hindi

Hi Mr. Vivek, i would like to seek ur advice regarding the central government announcement relating to the pension scheme. Which among the 2 pension schemes is more beneficial NPS or UPS. I am eagerly waiting for your financial advice on the above matter.

Ans: Dear Vivek,
Thank you for your query regarding the recent pension scheme announcement. Let’s understand the key differences between the National Pension System (NPS) and the newly introduced Universal Pension Scheme (UPS) and find out which might be more beneficial for you.
National Pension System (NPS) NPS is a government-backed retirement savings scheme where you contribute regularly during your working years, and the funds are invested in a mix of equity, corporate debt, and government bonds. Upon retirement, you receive a portion of the accumulated corpus as a lump sum, and the rest is used to purchase an annuity that provides a regular pension. Let’s see what are Tax Benefits Contributions to NPS are tax-deductible up to Rs 1.5 lakh under Section 80C and an additional Rs 50,000 under Section 80CCD(1B), making it attractive for tax-saving purposes. The returns on NPS depend on market performance, as it invests in equity and debt instruments. Historically, the average return has been between 8-10%, making it a relatively high-return pension option. If you see 2023 the returns are between 16 to 20%. There is Flexibility to choose your own asset allocation (equity vs. debt) or opt for auto-allocation based on your age and risk profile. For Withdrawals At the age of 60, you can withdraw 60% of the corpus tax-free, while 40% is used to purchase an annuity, which provides a regular pension. For premature exit is only possible after 5 Years after registration. you can withdraw entire amount if corpus is below 2.5 Lakh. If corpus is beyond 2.5 lakh then you can only withdraw 20% and balance 80 % to be invested to buy annuity.
In case of Universal Pension Scheme (UPS) it is a recently introduced pension scheme aimed at providing retirement benefits to all citizens, including those in informal sectors who may not have access to other retirement schemes. It is designed to ensure that every citizen has a basic income after retirement. For Contribution: UPS is likely to have lower contribution requirements compared to NPS, making it more accessible to those with lower incomes or irregular earnings. The scheme promises universal coverage, meaning it is open to all citizens, regardless of their employment status. UPS may offer fixed or modest returns, more similar to a traditional pension plan, and less focused on market-linked investments like NPS. The scheme is likely to be simpler to manage, with fewer choices regarding asset allocation and investment decisions. Under the UPS, the assured pension will be the average basic salary + DA drawn in the previous 12 months before superannuation. This would mean that government employees, at retirement, will get 50% of the average of the last 12 months' salary + DA.
Which One Is More Beneficial?
If You’re Seeking Higher Returns and Flexibility then NPS would be a better option as it allows for market-linked returns (higher than most traditional pension schemes) and gives you control over your investment choices. It’s ideal for those who want to accumulate a larger retirement corpus.
If You Want Simplicity and Universal Access then UPS could be a good choice for individuals looking for an easy-to-understand, universally available pension scheme with a stable income. It is designed to cater to a broader section of the population, especially those in informal jobs or without regular retirement savings.
For Tax Benefits: NPS offers significant tax benefits under Section 80C and 80CCD, which may make it more attractive if you’re in a higher tax bracket.
For Lower-Income Individuals: UPS may be more beneficial due to its accessibility and potentially lower contribution requirements.
It’s important to assess your long-term goals, income, and risk tolerance before making a decision. If you need further clarification or help choosing the best scheme for you, feel free to reach out.
Best regards,
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
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