look news india
UPS vs. NPS: The central government has recently brought good news for government employees by announcing UPS (Unified Pension Scheme). Which will be implemented from April next year. However, with this good news, government employees are now confused whether they should choose the current NPS system or UPS. Here we are going to tell you the difference and benefits between UPS and NPS with the help of experts.
Which one to choose between NPS and UPS?
According to experts, the process of switching from NPS to UPS will depend on the employee's goals. Some employees rely more on stock market-like returns, while others prefer guaranteed pension. Therefore, the employee should choose the NPS and UPS option according to his risk appetite. Dhirendra Kumar, CEO of Value Research, said, 'If you believe in India's growth story, it will be beneficial to remain invested in NPS for the remaining years of your retirement. For example, if you believe in the stock market and your retirement is 10 to 20 years away, then maintaining investment in NPS can give better returns.
Do you want to get a guaranteed fixed pension?
Expert Suresh Sadagopan said, the biggest attraction of UPS is the guaranteed income. The government has said that UPS employees will get a pension of 50 per cent of the average basic salary of the last 12 months. This can be a huge amount for many government employees. Therefore, NPS subscribers can consider switching to UPS, as this fixed amount after retirement will provide enough pension to support their lifestyle.
What is difference between UPS and OPS?
UPS has a guaranteed pension, but it is different from OPS (Old Pension Scheme). UPS is a fully funded scheme in which employees have to contribute 10 per cent of the basic salary and dearness allowance, while 18.5 per cent will be contributed by the government and the employer. Which is more than the 14 per cent contribution of the government in NPS.
How does the old pension scheme work?
Employees in OPS do not contribute to this fund, though they do contribute to the General Provident Fund (GPF). This money is returned to the employees at the time of retirement along with interest. OPS is a defined benefit pension scheme, which is based on the last salary received by the employees. Preeti Chandrasekhar, India Business Leader, Mercer Consulting, said, “Inflation-linked schemes like UPS reduce the interest rate and longevity risk for employees as the burden is borne by the government.”
Experts say that the corpus has to be managed very carefully as it is a mix of defined benefit and defined contribution. Both the employer (government) and the employee have to contribute to UPS. Out of the government's 18.5 per cent contribution, 8.5 per cent will go to a separate fund called the Guarantee Reserve Fund.
Once you switch to UPS there is no option to switch back to NPS
The government will provide more details about UPS in the coming days, which will help them decide whether employees should switch from the old to the new pension scheme. UPS is an option for employees. Existing and new employees will have the option to choose between NPS and UPS. The government has said that there will be no change once the selection is made.
