UPS vs NPS vs OPS: Last-drawn basic pay Rs 90,000, pensionable service 27 years; which scheme may help you get highest pension?

OPS has its roots in the British period, but it found its new face post-independence in 1947. In 1998, the retirement age for employees was increased from 58 years to 60. It was the only pension scheme for employees across India (state and Centre) before the launch of NPS. The scheme was discontinued in most states after NPS came into existence, but a lot of states such as Himachal Pradesh, Punjab, and Rajasthan, have brought OPS back.

The National Democratic Alliance (NDA) launched this scheme on January 1, 2004, for central government employees, replacing OPS. Central government employees who joined from this date had NPS as the only pension option. The scheme was opened to all Indians, including Non-resident Indians (NRIs) in 2009.

The central government launched the scheme in August 2024 and notified it in January this year. The scheme will be implemented on April 1, 2025. The scheme promises to have a combination of NPS and OPS.

An employee needs to complete at least 10 years of service to be eligible for a pension under OPS. The last 10 months of average pay before retirement is taken into account. 

Dearness relief (DR) is added to it to calculate the pension amount. If the pensioner dies, their family gets the pension.

Under UPS, for a central government employee, the pension amount is 50 per cent of their average basic salary over the last 12 months before retirement. However, for that, their minimum service years should be at least 25 years. The scheme guarantees a minimum pension of Rs 10,000 to an employee with a minimum of 10 years of service.

If the pensioner dies, their family will receive 60 per cent of the last-drawn pension. Employees contribute 10 per cent of their basic salary and DA, while the government contributes 18.5 per cent to the employee's UPS account. The employee will get a lump sum amount at retirement and a monthly pension after that.

Under NPS, the employee contribution to their NPS corpus is 10 per cent of their basic salary and DA, while the employer's contribution is 14 per cent. The pension is not fixed as it depends on an individual's contribution.

At the retirement age of 60, an NPS account holder gets the facility to withdraw up to 60 per cent of their corpus as lump sum. From the remaining 40 per cent amount, they purchase an annuity plan, which provides them a monthly pension. NPS provides 5 types of pensions.

We are taking Rs 90,000  as the basic salary of last 12 months. We are taking the current dearness allowance (DA) of 53 per cent. In such a situation, they will get a lump sum amount of Rs 7,43,580, and the estimated monthly pension of Rs 45,000. If we include a 53 per cent DR, the total pension will be Rs 68,850. 

The family pension in the given conditions will be Rs 27,000. Adding a 53 per cent DR, the total pension will be Rs 41,310.

We are taking the example of a person who retired on December 31, 2024 with the last 10-month basic salary of Rs 90,000.  The basic pension will be Rs 45,000. If we include 53 per cent DR, the total pension will be Rs 68,850.

The basic family pension will be Rs 27,000. Adding a 53 per cent DR to it, the total pension will be Rs 41,310.

Since NPS pension doesn't depend on the last-drawn basic pay or the years of service, we are creating a pension projection where the central government employee will start with a Rs 10,000 monthly contribution and increase the amount by 5 per cent every year for 27 years.

For such a person, the total investment in 27 years will be Rs 65,60,295, the estimated lump sum withdrawal will be Rs 1,25,45,878, and the estimated monthly pension will be Rs 47,047. The expected return from pre-retirement investment is 9.18 per cent, while post-retirement return is 6.75 per cent. Since NPS Tier I accounts follow the Nifty 50 index, the amounts may change from time to time.