New Delhi: Central government employees can get more pension under the Unified Pension Scheme (UPS) than National Pension System (NPS.) Even with a salary of Rs 2,00,000 per month, a government employee can get monthly pension of Rs 1 lakh for his entire life upon retirement under the UPS.
But under NPS, he will get the same pension only if his monthly income is Rs 1.56 lakh per month. Lets comprehend this with an example.
Suppose, an employee would choose UPS as his retirement scheme. He works for next 25 years after which he turns 60 of age and retires. For Rs 1 lakh pension, he should have Rs 2 lakh average monthly salary in last 12 months of his service. Then, upon superannuation, he will get the desired pension amount as following is UPS formula for derivation of pension amount:
How pension will be calculated under UPS:
Pension = 50% of Rs 2,00,000 = Rs 1 lakh
While, if the same government employee chooses NPS, then, to get Rs 1 lakh pension, his minimum salary has to be Rs 3.75 lakh because he will have to contribute Rs 37,500 every month.
Following assumptions are made:
- Investment period is 25 years
- 40% of NPS Retirement Corpus is used for Annuity Purchase
- Return on investment is 10%
- Expected Annuity Rate is 6%
Under UPS, the central government would contribute 18.5% of employee’s salary (basic pay DA) to his retirement fund every month. While, 10% of the employee’s salary will also be diverted to his account. While, in case of NPS, the government contributes 14% of his salary to his account. And, employees are required to divert 10% of their wages towards their NPS account.
The Government of India launched UPS with an estimation that 99% of current NPS subscribers would move to it. NPS would remain as go to retirement scheme for corporate employees.