THE UNIFIED PENSION SCHEME (UPS), launched on April 1, 2025, introduces significant changes to India’s pension framework, particularly impacting the National Pension System (NPS). Analysts and experts are actively evaluating how this new scheme will reshape the retirement planning landscape for government employees.​

“UPS is being introduced as an alternative to NPS for Central government employees, offering a guaranteed 50% pension of the last drawn basic salary and ongoing inflation indexation through dearness relief,” says Sriram Iyer, CEO of HDFC Pension, adding that he anticipates that most employees will choose this option. This extension is set to benefit approximately 2.7 million government employees.

Decoding UPS

Let’s take a closer look at UPS. The scheme guarantees a pension amount equivalent to 50% of an employee’s average basic salary over the last 12 months prior to retirement. Eligibility requires a minimum of 25 years of service, with proportional benefits for those serving between 10 years and 25 years. In the event of a pensioner’s demise, the scheme provides a family pension amounting to 60% of the original pension. Additionally, it ensures a minimum pension of ₹10,000 per month for retirees with at least 10 years of service. Pension amounts are adjusted for inflation through dearness relief, and retirees receive a lump-sum payment upon retirement, calculated as one-tenth of monthly emoluments for every completed six months of service. ​

How does UPS — which offers government employees an alternative to the existing scheme — compare with NPS, the current scheme? Experts say each has distinct characteristics. NPS is a defined contribution plan where both employees and the government contribute (10% and 14% of basic pay, plus dearness allowance, respectively), with pension benefits linked to market returns. In contrast, UPS provides a defined benefit with assured payouts, requiring employee contribution of 10% and increased government contribution of 18.5%. ​

“The UPS brings more predictability to retirement planning while keeping some market-linked features. The choice between UPS and the existing NPS will likely come down to individual preferences — some may prefer the security of assured payouts, while others might value the flexibility and growth potential of the existing NPS,” explains Adhil Shetty, CEO of BankBazaar.com, a co-branded credit card issuer. He adds that like any new policy, the success of UPS hinges on its execution. “Clear guidelines, easy enrolment, and smooth fund management can be key to making it work well for employees and the pension system,” he says. Experts highlight that while UPS offers guaranteed benefits, it lacks the investment flexibility inherent in NPS. An employee can increase or decrease exposure to equities at any time under NPS. It also lets one extend the accumulation phase up to the age of 70, allowing you to grow the retirement corpus for longer.

Rajesh Khandagale, senior vice president, NPS, KFin Technologies, a SaaS player in the financial space, says the adoption of technology in NPS is very high, with most processes being managed digitally. “As a regulator, the Pension Fund Regulatory and Development Authority (PFRDA) has been very supportive in the implementation of technology allowing for digital KYC, authentications, and verifications. This has greatly reduced the need for paper-based authorisations and even upload of documents,” he says.

Just like NPS, UPS is also being structured to minimise paperwork, enable Aadhaar-based authentication, and simplify contributions and withdrawals through mobile platforms and digital interfaces. The PFRDA’s continued emphasis on technology ensures that digital convenience and accessibility remain core to the pension ecosystem.

This alignment in digital strategy is a key reason behind the success of NPS and is likely to play a pivotal role in driving adoption and trust in UPS as well.

Impact on NPS

The introduction of UPS is poised to influence the NPS subscriber base significantly. Currently, NPS has approximately 2.71 million central government subscribers, accounting for 27.6% of its total corpus of ₹13.4 lakh crore (AUM as on February 28, 2025). As Central government employees transition to UPS, NPS may experience a reduction in its corpus. The extent of this impact could be amplified if state governments adopt similar schemes, offering NPS subscribers the option to switch.

However, some analysts believe that the flexibility of NPS and its potential for higher returns might retain a segment of subscribers. NPS permits equity allocation up to 75%, providing greater return potential for risk-tolerant investors. In contrast, UPS is a low-risk scheme with guaranteed returns but limited growth potential due to conservative investment strategies. “The corporate NPS and retail NPS segments, which are the fastest growing, will remain unaffected and continue to pick up pace given the increasing awareness levels about NPS,” says Iyer of HDFC Pension.

The deciding factor

Government employees face a critical decision in choosing between UPS and NPS. UPS offers assured benefits and protection against market volatility, appealing to those seeking predictable retirement income. Conversely, NPS provides investment flexibility and the possibility of higher returns, suitable for individuals comfortable with market-linked risks.

Tax implications also play a role in this decision. Under NPS, up to 60% of the accumulated corpus can be withdrawn tax-free at retirement, with the remaining 40% used to purchase an annuity, the income from which is taxable. The tax treatment of UPS benefits remains to be fully clarified, adding a layer of complexity to the decision-making process.

As UPS is implemented, its long-term impact on NPS and the broader pension landscape will become clearer. Employees will need to assess their retirement goals, risk tolerance, and financial needs carefully before picking one of the schemes.