Unified Pension Scheme: Does UPS Offers Annuity Options?

The Unified Pension Scheme (UPS) was launched for central government employees last year and became effective on April 1, 2025. The scheme is a reply to the long-held demands for the old pension scheme since the National Pension System (NPS) replaced it in 2004. Note that OPS didn’t require any contribution from employees, but NPS is a contributory scheme.

Where OPS offers a guaranteed pension, NPS takes exposure to the market and thus has the potential for higher returns. The new pension scheme, UPS, is a mix of these two pension schemes. It took the contributory feature from NPS and the guaranteed pension from the OPS.

As UPS offers a guaranteed pension of up to 50 per cent of the average salary of the last 12 months, does it offer annuity options to its subscribers, like in NPS? Let's delve deeper.

What is Annuity?

An annuity is a financial product that promises to pay you a regular, guaranteed amount for the rest of your life or a period per the conditions.

How does it work?

Annuities are provided by the insurance companies. Similar to buying any other insurance product, one can buy an annuity by paying a lump sum amount. In return, the insurer provides a regular payment that can start immediately or after a certain period. Insurance companies can provide annuities for a lifetime or a pre-determined period. They provide the buyer's flexibility to select the income option while securing one’s family members with the insurance amount.

Notably, NPS offers different types of annuities for subscribers, such as annuity without return of purchase (ROP), annuity for life with ROP, annuity to spouse with or without ROP, and family income with ROP, among others.

Does UPS provide annuity options?

Rajesh Khandagale, SVP - NPS, KFin Technologies, says, “UPS does not offer annuity options like NPS”.

Note that the annuity offers a certainty of payment in exchange for a lump sum amount. This is why, in NPS, when the corpus is accumulated, 40 per cent of it (the lump sum) is used to buy an annuity to ensure a regular and guaranteed income.

In contrast, UPS has the built-in feature of a regular and guaranteed income, in which it is done automatically.

Khandagale explains, “In UPS, the pension payout is determined based on the employee’s last 12 months' salary and the total duration of employment. Once an employee retires, they will receive a fixed pension amount deducted from their accumulated corpus, along with dearness allowance (DA) adjustments as determined by the government. Additionally, in the event of the employee’s death, their spouse will receive 60 per cent of the pension amount, including the DA”.

He further says, “Unlike annuities, UPS does not provide flexibility in terms of different payout structures such as family pension, return of corpus, or other annuity-based options. The pension structure under UPS is straightforward and focused on offering a stable post-retirement income without investment-linked variations”. 

So, the purpose of a regular and guaranteed income and the option of continuation of payout to the family is already there in UPS, and therefore, it does not offer annuity choices.