UPS VS NPS: How Much Should Government Employees Invest To Get Rs 90,000 Monthly As Pension

Central Government employees except armed forces will have to pick between the National Pension System (NPS) and the Unified Pension Scheme (UPS) from April 1, 2025 onwards.

NPS vs UPS

While NPS has variations in returns, UPS is supposed to give a government-backed guaranteed pension. The main difference included risk levels, employer contributions, and investment strategies. 

Under UPS, the government is supposed to contribute 18.5 per cent of the employee’s basic salary plus dearness allowance (DA), while the employee contributes 10 per cent. The pension is calculated as 50 per cent of the average basic salary over the last 12 months before retirement.

Here’s how much employees must invest in each scheme to secure a monthly pension of Rs 90,000.

UPS: How to Ensure Rs 90,000 Pension After 35 Years of Service

Suppose an individual joined a government service on April 1, 2025, at the age of 25 and retired at 60, completing 35 years of service.

Assuming the individual withdrew an average basic salary for the last 12 months before they retired, which stood at Rs 1.8 lakh per month, then under UPS. The guaranteed pension would be 50 per cent of this amount, which is Rs 90,000 monthly.

Apart from this, UPS offers an annual inflation-linked pension increase. Assuming a 4.5 per cent annual increase, the pension at the age of 61 can potentially increase to Rs 94,050 per month.

Under the Old Pension Scheme (UPS), the government contributes 18.5 per cent of the employee’s salary, while the employee contributes 10 per cent. The pension is considered safe and increases with inflation, making it a predictable retirement option.

UPS prioritises stability, investing mostly in government bonds, to ensure minimal risk and predictable post-retirement income.

NPS: How Much Investment is Required for Rs 90,000 Pension?

If a person started working at 25 years of age and retired at 60, they need to invest Rs 15,120 every month (combining 10 per cent employee contribution and 14 per cent government contribution).

Over a 35-year service period, an individual investing in the NPS with an estimated annual return of  9 per cent would contribute a total of Rs 63.5 lakh. Taking into account compounding, this investment would grow to Rs 4.48 crore by retirement at age 60. 

Meanwhile, at the time of retirement, 40 per cent of the corpus, i.e. Rs 1.79 crore would be allocated to an annuity plan, assuming it will give a 6 per cent return. 

This would help the individual generating a monthly pension of Rs 90,000. Meanwhile, the remaining 60 per cent of the corpus i.e. Rs 2.69 crore would be available to withdraw as a lumpsum amount. However, since NPS returns depend on market performance, the final pension amount may fluctuate, the above figures are for illustrative purposes only.

Note: The numbers used in the calculation, for example, are illustrative figures.