UPS vs NPS vs OPS: Comprehensive Guide to Pension Schemes

Summary: The Unified Pension Scheme (UPS), National Pension System (NPS), and Old Pension Scheme (OPS) are India’s three major pension schemes, each offering unique features. The UPS, effective from April 2025, combines elements of OPS and NPS, offering assured payouts, inflation indexation, and government contributions of 8.5%. It includes benefits like assured family pensions and gratuity but lacks a lump sum payout at retirement. NPS, launched in 2004, is a market-linked scheme where employees contribute 10% of their salary, and the government adds 14%. While it provides tax benefits and flexible investment options, payouts depend on market performance, with only 60% of the corpus tax-free at retirement. The OPS, available for employees appointed before December 2003, guarantees a fixed pension equal to 50% of the average basic pay from the last 12 months of service. It does not require employee contributions, but the scheme places a significant financial burden on the government. Unlike NPS, it offers no lump sum withdrawal, and pensions are revised semi-annually to adjust for inflation. The key differences between these schemes revolve around risk, returns, and government involvement. While OPS guarantees a stable pension, NPS and UPS balance growth potential with varying degrees of market risk and assured returns. Choosing the right scheme depends on individual preferences for stability, flexibility, and market exposure.

Introduction to Pension Schemes: UPS, NPS, and OPS

The Central Government has notified the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for Central Government employees. It aims to provide assured payouts and specific retirement benefits. Apart from basic pension these employees will also get dearness relief in line with the ones given to existing employees.

The Pension Fund Regulatory and Development Authority (PFRDA) will oversee UPS regulations and provide operational guidelines. The scheme’s effective date is April 1, 2025.

The three prominent pension schemes in the country today are:

1. Unified Pension Scheme: The Unified Pension Scheme is a very recent addition by the Prime Minister Narendra Modi-led government. This new pension scheme will come into being from FY2025-26.

2. National Pension System: National Pension System, better known as the NPS, was introduced in the year 2004. The scheme was earlier only for government employees but was then extended to all sectors in 2009.

3. Old Pension Scheme: As the name suggests, the Old Pension Scheme is the oldest scheme out of the three. Under this scheme, government employees having put in a minimum of 10 years of service, receive a pension.

What is UPS (Unified Pension Scheme) pension? 

Let us begin with the Unified Pension Scheme.

Overview and Key Features

In the history of pension schemes, UPS is the latest addition. UPS is a pension scheme, however, here an employee has to contribute 10% of their basic pay and the DA (dearness allowance). The government’s share will be 18.5%, which stands at 14% for NPS.

Eligibility Criteria

Employees who retire after fulfilling certain requirements—such as superannuation, FR 56(j) retirement, or voluntary retirement after 25 years—are guaranteed benefits under the UPS. Employees who resign before fulfilling the requirements or are fired for disciplinary reasons are not eligible to get benefits under the Unified Pension Scheme, nevertheless.

Superannuation after 10 Years of Service

Employees are eligible for an assured payout if they retire after completing a minimum of 10 years of qualifying service, starting from their date of superannuation (official retirement age).

Retirement Under FR 56 (j):

Employees who are retired by the Government under Fundamental Rules (FR) 56(j)—a provision allowing retirement in the public interest for efficiency, before the regular superannuation—are eligible for assured payouts.

Important Note: This retirement is not a penalty under the Central Civil Services (Classification, Control, and Appeal) Rules, 1965.

Voluntary Retirement with 25 Years of Service:

Employees who take voluntary retirement after completing at least 25 years of service are eligible.

In this case, the payout will commence from the date the employee would have reached the superannuation age, had they continued working.

Who is not eligible for UPS?

Assured Payout will not be provided in the event of an employee’s removal, discharge, or resignation. In such instances, the Unified Pension Scheme option will not apply.

What are the assured payout rules under UPS?

Subject to other conditions stated in the Ministry of Finance notification dated January 24, 2025, Assured Payout under the scheme shall be as follows, namely:

Full Assured Payout

The entire assured payout is 50% of the average basic wage over the last 12 months before retirement. This full payout is only available to employees with at least 25 years of eligible service.

Proportionate Payout for Lesser Service

If the employee has less than 25 years of qualifying service, he/she will get a proportional compensation based on their service time. For example, someone who served 15 years will receive a lower payout than someone who served 25 years, based ..

Benefits and Drawbacks

The benefits of the UPS are listed below:

The policy is said to offer 5 key benefits:

• Assured Pension
• Assured Family Pension
• Assured Minimum Pension
• Inflation Indexation
• Gratuity

The scheme has been designed to provide adequate financial security to the employees and their families.

However, keep in mind that the taxation details are still awaited. Also, many consider the Unified Pension System to be worse than the National Pension System. People consider that even after contributing 10% of the basic pay for the whole service period, pensioners will not receive a lump sum. Many consider that the new pension scheme does not offer the required financial stability.

What is an NPS (National Pension System) pension? 

Now, let us get into the National Pension Scheme details.

Overview and Key Features

The launch of the NPS in 2004, transformed the existing pension system, which is currently known as the Old Pension Scheme. Under the PFRDA, Pension Fund Regulatory and Development Authority, NPS is a voluntary investment program that offers pension post-retirement. Here, government employees contribute 10% of their basic salary plus DA, while the government contributes 14%.

Eligibility Criteria

The ​​National Pension Scheme was extended to all sectors in the year 2009 except armed forces.

Benefits and Drawbacks

The benefits of NPS are as follows:

• NPS is a market-linked annuity scheme. Here, during your employment, you keep investing an amount and at the time of retirement (60 years), you can withdraw 60% of the corpus, that too tax-free.
• The remaining 40% is utilised as a monthly annuity.
• NPS allows flexibility and lets you have control over your investments. You can choose a fund manager that appeals most to you.
• NPS contributions offer tax benefits under section 80C, 80 CCD (1B) and 80 CCD2.
• However, keep in mind that:
• The payout of NPS is not fixed as it is a market-linked instrument.

What is an OPS (Old Pension Scheme) pension? 

We will now discuss the Old Pension Scheme.

Overview and Key Features

This government-approved pension scheme for government employees offers a guaranteed monthly pension to those who have put in a minimum of 10 years of service. Assured pensions amount equal to 50% of the average basic pay over the previous 12 months before retirement for employees with at least 25 years of service.

Eligibility Criteria

OPS is for Central government employees appointed before the NPS notification date which is 22 December 2003.

Benefits and Drawbacks

The benefits of OPS are as follows:

• The is no deduction from the employee’s income while they are in service.
• There is a pension revision twice a year.
• Employees and their spouses get the pension benefit.

But at the same time, know that:

• Pensioners do not receive any corpus at the time of retirement.
• OPS puts a big burden on the central and state governments.
• Pension liabilities keep growing year after year.

UPS vs NPS vs OPS: Key Differences    

Let us break down the key differences between UPS, NPS, and OPS.