UPS vs NPS vs OPS: Average basic salary at retirement Rs 95,000 after 27 years of service? Know which scheme may provide highest pension
UPS vs NPS vs OPS: Central government employees have two types of pension systems- Old Pension Scheme (OPS) and New Pension System (NPS). From April 1, 2025, they will have one more option in the form of Unified Pension Scheme (UPS). In which system can they get the highest monthly pension if they have Rs 95,000 as average basic pay at retirement and their pensionable service is 27 years?
UPS vs NPS vs OPS: When central government employees retire, they have National Pension System (NPS) as the only retirement pension scheme. From April 1, 2025, they will also have the option to pick Unified Pension Scheme (UPS). However, many states such as Haryana, Punjab, Chhattisgarh, and Rajasthan, have reintroduced Old Pension Scheme (OPS). Apart from that, central government employees who joined their service before January 1, 2004, get their pension under OPS. Which pension system offers the highest monthly pension? Which of the 3 systems may offer the highest monthly pension to a pensioner who retired with Rs 95,000 average basic pay and 27 years of pensionable service? See our projections to know.
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(Disclaimer: These are projections. Actual pension amount may vary.)
What is Old Pension Scheme (OPS)?
OPS was introduced in the 19th century by Britishers, but it has gone through many changes ever since. It came into its current form post-Independence. OPS made an important change in 1998 when it extended the retirement age from 58 to 60.
How is pension calculated in OPS?
In OPS, the average of the basic salary and emoluments of the last 10 months prior to retirement is taken into account. A pensioner gets 50 per cent of that average in the form of a monthly pension. OPS also has the provision of a family pension on the death of the pensioner. The family pension is 60 per cent of the full pension. However, an employee needs at least 10 years of service to be eligible to get a pension under OPS. If the service is less than that, they will get a lump sum amount at retirement, but they don't get the monthly pension.
Commutation of OPS pension
OPS has a unique system of commuting the pension amount, where a pensioner can commute up to 40 per cent of their pension. In lieu of that, they get a lump sum amount at retirement. But they get a reduced pension, which is 60 per cent of the pension without commutation. However, the reduced pension is for 5 years. After that, they get a full pension.
What is National Pension System?
Unlike OPS, where an employee doesn't need to make any contribution to get a pension post retirement, an NPS pension is based on the contribution of the employee and the employer.
NPS replaced OPS on January 2024. Many states also opted for it, while a few stuck to OPS. The scheme, earlier restricted to government employees, was opened to all individuals, including NRIs, in 2009.
How is pension calculated in NPS?
For an employee, the maximum NPS contribution can be 10 per cent of their basic pay and DA, while the employer can also contribute up to 14 per cent. The NPS account holder can withdraw up to 60 per cent amount at the age of 60. From the remaining 40 per cent amount, they need to purchase an annuity plan to get a monthly pension.
What is Unified Pension Scheme (UPS)?
The scheme launched in October 2024 and notified in January is a mix of NPS and OPS. The scheme will be implemented on April 1, 2025. It will be available for central government employees, who may also switch from NPS. Existing retired employees following NPS can also switch to UPS.
How is pension calculated in UPS?
Like OPS, it offers an assured pension, while like NPS, it also offers market-linked returns. The employee's maximum contribution to their UPS account can be 10 per cent of their basic pay and DA, while the employer's contribution will be 18.5 per cent. The employee's and the employer's 10 per cent contribution each will be invested in market-linked investments, while the employer's 10 per cent contribution will be invested in a pool of assured income corpus. Like OPS, UPS also offers a family pension when the pensioner dies. The family pension will be 60 per cent of the full pension amount.
Eligibility to get UPS pension
An employee needs to complete at least 10 years of service to get a UPS pension. They will be offered an assured pension of Rs 10,000. However, on completion of 25 years of service, they are eligible to get a maximum of 50 per cent of their average basic pay and DA. For employees with less than 25 years of service, the pension amount will be proportionate to their service years. The employee will also get a lump sum amount at retirement.
OPS: Monthly pension for Rs 95,000 average basic pay & 27-year pensionable service
We are calculating OPS and UPS pension at 53 per cent DA rate.
Basic Pension: Rs 47,500.00
Dearness allowance: Rs 25,175
Total Pension: Rs 72,675
OPS: Family pension for Rs 95,000 average basic pay & 27-year pensionable service
Rs 43,605
UPS: Monthly pension for Rs 95,000 average basic pay & 27-year pensionable service
Basic Pension: Rs 47,500
Dearness allowance: Rs 25,175
Total Pension: Rs 72,675
UPS: Family pension for Rs 95,000 average basic pay & 27-year pensionable service
Rs 43,605
UPS: Lump sum amount for Rs 95,000 average basic pay & 27-year pensionable service
Rs 7,84,890
NPS: Monthly pension for Rs 95,000 average basic pay & 27-year pensionable service
Since in NPS, there is no system of an assured pension, we are creating a scenario for an employee to know the pension amount.
We are assuming that the person started with a central government Rs 10,000 monthly NPS contribution and increased their amount by 5 per cent every year.
The person decides to withdraw 60 per cent corpus and purchase an annuity plan from the rest of the 40 per cent amount.
NPS: Monthly pension for Rs 95,000 average basic pay & 27-year pensionable service
Estimated corpus- Rs 2,09,37,863
Estimated lump sum- Rs 1,43,77,568
Estimated monthly pension- Rs 47,110
NPS: If pensioner purchases annuity from 100 per cent corpus
In that case, the estimated monthly pension will be Rs 1,17,775. However, there will be no lump sum amount.