NPS vs UPS: CA Explains Why Most People Get It Wrong—'What Really Matters After 60'

NPS Vs UPS: Retirement planning requires careful analysis of your financial position and selection of suitable schemes. Choosing an appropriate pension plan can ensure your financial security in your retirement years.

After the newly launched Unified Pension Scheme (UPS), the government employees could be facing a dilemma in choosing a suitable retirement scheme. Currently, the government employees are covered under the National Pension System, which offers market-linked returns. 

The UPS plan came into effect on April 1, 2025. It offers a guaranteed pension for government employees with at least 10 years of service.

In a recent post on 'X', CA Nitin Kaushik explained what factors should be taken into account when planning for retirement, especially for government employees facing a dilemma over choosing between NPS and the UPS.

"Choosing between NPS and UPS isn’t about the schemes. It’s about asking, ‘How will I run my household after 60?," he wrote on X. He suggested that once salary stops, income planning becomes the heart of retirement.

The CA pointed out that most people get it wrong because of the lack of financial education in school, advisors who sell products instead of offering advice, and people seeking a "shortcut" without doing the math.

The real challenge, he says, is estimating how long one will live and planning for a corpus that ensures financial independence. Many middle-class families mistakenly believe a fixed sum, say Rs 2 crore, is enough. However, in reality, retirement needs are different and depend on your lifestyle, health and personal goals.

Kaushik also recommended a simple method to calculate the retirement corpus. For example, your current monthly expenses are Rs 50,000. Prices rise over time. Inflation can roughly double costs in about 12 years. Then multiply the annual expense by 25, which is based on the 4% withdrawal rule.

For instance, if you expect to spend Rs 1 lakh a month after retirement, taking the total to 12 lakh per year, one will need a corpus of around Rs 3 crore. If NPS provides only Rs 1.5 crore, there's still a gap of Rs 1.5 crore you'll need to cover through other investments, according to the CA.

On the other hand, UPS offers a fixed lifetime pension, usually about 50% of your last pay. However, NPS gives market-linked returns, but part of it must be converted into an annuity (40%), which usually gives 6–8% returns.

Kaushik, however, suggested that younger employees, between 20 and 40, who are willing to learn about investing, can benefit from NPS with equity allocation along with other investments like mutual funds or SIPs. The reason is that younger people have time to take advantage of market-linked growth and recover from short-term fluctuations.

Older employees, above 50, who aren't into money management might prefer UPS or a pension-heavy option because it offers a fixed, predictable income. This provides peace of mind without the stress of monitoring investments or dealing with market risks.

He mentioned that neither scheme is perfect on its own. Without proper planning, you could end up with a gap in your retirement income. The smartest approach is to figure out your total needs first, then use NPS, UPS and other investments together to cover that gap.