The government's implementation of the Unified Pension Scheme (UPS) from April 1, 2025, marks a significant shift for central government employees, offering guaranteed retirement payouts based on their last drawn salary. This development changes how retirement planning is approached, particularly when compared to the existing National Pension Scheme (NPS).
The UPS is structured as a fund-based payout system. Its design relies on regular and timely contributions from both the employee and the employer (the Central Government) to guarantee monthly retirement payments to employees. Unlike the NPS, which is influenced by market fluctuations and relies on the performance of equity and debt investments, the UPS promises assured pension payouts, making it less risky.
According to the government announcement, “The UPS will offer assured pension payouts based on the last drawn salary of central government employees.” This new option contrasts with the NPS, which has been the primary retirement savings plan since its introduction by the Central Government in 2004.
For civil servants opting for UPS, the minimum guaranteed pension set at Rs. 10,000 per month after ten years of qualifying service will serve as financial reassurance. The structure also stipulates contributions from employees will be 10% of their basic pay plus Dearness Allowance, matched by the Central Government's contribution.
On the other hand, the NPS has long provided subscribers with two investment avenues: Tier-1, which is compulsory, and Tier-2, which is voluntary. Under the current NPS structure, individuals can withdraw 60% of the investment upon retirement, transitioning the remaining 40% to purchase annuities.
The latest revisions to NPS fees, effective January 31, 2025, signal another major change for subscribers. The Pension Fund Regulatory and Development Authority (PFRDA) aims to improve transparency and cost-effectiveness for subscribers, emphasizing informed decision-making.
The new fee structure imposed by the PFRDA includes charges applicable during various transactions within NPS, such as account opening and contributions. An initial registration fee of up to ₹400 is now applicable, alongside a contribution fee capped at 0.50% of the amount. The former cap on annual contributions persists, limited to ₹25,000.
Revised charges extend to non-financial transactions as well, which may amount to ₹30 per transaction, impacting those who frequently update personal details without monetary changes. The PFRDA also introduced persistency charges aimed at encouraging consistent contributions—these range from ₹50 to ₹100 per annum depending on the contribution brackets.
For several subscribers, these alterations may result in increased costs particularly if opting for frequent small contributions. The revisions challenge individuals to be strategic with their retirement savings approaches. PFRDA urges subscribers to favor lump-sum contributions over frequent, smaller deposits to minimize overall fees.
For those who pass away before retirement, the NPS provides reassuring flexibility. The funds from their accounts will be paid directly to nominated heirs or family members, ensuring financial security for loved ones left behind. If no nominee is listed, the entire process involves submitting necessary legal documents to retrieve the funds.
Industry experts advise NPS subscribers on best practices to minimize costs. Utilizing features such as e-NPS for online participation and D-Remit for efficient direct contributions help streamline fee management. They recommend automated options via standing instructions or NACH mandates for hassle-free contributions and to avoid persistency charges.
Overall, with the introduction of the Unified Pension Scheme alongside revisions to the NPS fee structure, central government employees must navigate these shifts diligently to secure their financial futures. By weighing the assured benefits of UPS against the market-dependent potential of NPS, employees can make well-informed decisions about their retirement planning.