Rs 25,000-1 lakh starting salary? Calculating UPS pension and NPS retirement corpus

Granted, NPS and UPS are both government-sponsored pension schemes, they are both available to government employees and they both share two-thirds of their acronym. Yet, they are both inherently different. NPS (National Pension Scheme) invests a portion of the money in the equity market, while UPS (Unified Pension Scheme) is a guaranteed fixed-income plan.

Under UPS, if you've served for 25 years or more, you're guaranteed a pension worth 50 per cent of your average basic pay during the last 12 months before retirement. Those with at least 10 years of service will receive a proportionate payout. There are also inflation-adjusting features.

In short, UPS guarantees stability.

But it does have its limitations.

• For starters, UPS's lump sum payout is available only at retirement. So, if you leave your government job before retiring, you might miss out on this benefit. NPS, on the other hand, allows you to withdraw up to 20 per cent of your savings before the age of 60.
  
• Two, UPS provides the spouse with 60 per cent of the last pension but stops the disbursal upon their death. NPS, however, permits fund transfer to heirs.

UPS pension

Now that you are aware of UPS's pros and cons, let's look at how much pension it will provide to different income earner, assuming an annual salary growth of 5 per cent:

• Starting salary: Rs 25,000
• One-time payout: Rs 4.83 lakh
• Guaranteed annual pension: Rs 4.14 lakh

• Starting salary: Rs 50,000
• One-time payout: Rs 9.65 lakh
• Guaranteed annual pension: Rs 8.27 lakh

• Starting salary: Rs 75,000
• One-time payout: Rs 14.48 lakh
• Guaranteed annual pension: Rs 12.41 lakh

• Starting salary: Rs 1 lakh
• One-time payout: Rs 19.31 lakh
• Guaranteed annual pension: Rs 16.55 lakh

NPS retirement corpus

Similarly, let's check how much NPS corpus you'll need to match the pension provided by UPS, assuming a salary growth of 5 per cent, the after-retirement corpus to grow at 10 per cent and withdrawal rate of 6 per cent in retirement.

• If your starting salary is Rs 25,000 at 25, you'll need to build a Rs 1.08 crore corpus by 60.
  
• If your starting salary is Rs 50,000 at 25, you'll need to build a Rs 2.17 crore corpus by 60.
  
• If your starting salary is Rs 75,000 at 25, you''ll need to build a Rs 3.25 crore corpus by 60.
  
• If your starting salary is Rs 1 lakh at 25, you'll need to build a Rs 4.33 crore corpus by 60.

The last word

NPS offers government employees the advantage of equity exposure, which can help build a substantial retirement corpus over the long term.

Meanwhile, although the newly-introduced UPS brings stability , some details still need to be sketched out. So, it's best to wait for the full picture before making any decisions.

Also read:
One tip to build a larger retirement corpus
NPS vs PPF vs EPF

This article was originally published on September 11, 2024.