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Unified Pension System: The last date for applying in UPS i.e. Unified Pension Scheme has been extended from 30 June to 30 September. In such a situation, central employees now have three months to apply in UPS. UPS has been implemented for central employees from 1 April. Till now, the contribution of all employees is being done in National Pension System (NPS). NPS is a market based scheme, while UPS is a scheme giving guaranteed pension. The decision to choose any one of the two schemes will directly affect their life after retirement. In such a situation, there is confusion in the minds of the employees as to which scheme they should choose? Should they remain in NPS or switch to UPS? Know the pros and cons of both the schemes here, so that you can take the right decision for the future.

Benefits of switching to UPS

The advantage of UPS is that after completing 25 years of service, central employees will get at least 50 percent of the last salary as fixed pension and a lump sum amount. There is no fixed pension system in NPS. Like NPS, in UPS too, employees will have to contribute 10% of the salary, but the government's contribution in this scheme will be 18.5 percent, while the government's contribution in NPS is 14 percent. The pension received from UPS will also be increased according to the inflation rate, whereas this benefit is not available in NPS.

Tax in UPS

The monthly pension received under UPS will be considered as your income and will be taxed according to your tax slab. The situation is not yet completely clear on how the lump sum amount received on retirement will be taxed.

What are the benefits of staying in NPS?

The guarantee of UPS may seem attractive, but before completely rejecting NPS, know its benefits as well. NPS is an investment-cum-pension plan, which has its own special benefits:

Opportunity to create a big fund

Since NPS money is invested in equity (stock market), government bonds and corporate debt, it has the potential to create a huge retirement fund in the long run. If the market performs well, your return can be much more than the guaranteed pension of UPS.

Great tax benefit

NPS is an excellent way to save tax. How? Understand-

Section 80C: You can get tax exemption on investment up to Rs 1.5 lakh.

Section 80CCD(1B): Under this, you get an additional tax exemption of Rs 50,000, which is above the limit of 80C. That is, a total benefit of Rs 2 lakh.

Section 80CCD(2): If your employer (government) contributes to your NPS account, then you also get tax exemption on that.

Maturity and tax mathematics: How much tax will be levied where?

It is very important to understand how tax will be levied on the money received on retirement. On retirement, you can withdraw 60% of the total deposited fund in lump sum, and this amount is completely tax-free. With the remaining 40%, you have to buy an annuity plan, which gives you pension throughout your life. This pension is taxed according to your income tax slab.

What are the biggest differences between UPS and NPS?

To understand which option is better for retirement planning, it is important to first know the basic difference between the two.

Which is best for you: UPS or NPS?

There is no straight answer to this. It completely depends on your age, financial goals and risk-taking ability.

When should you choose UPS?

If you want security: If you do not want to take any risk after retirement and want a fixed, guaranteed income, then UPS is best for you.

Inflation concerns: If you want your pension to increase with rising inflation, then UPS's dearness allowance (DA) feature is very beneficial for you.

Fear of market fluctuations: If you do not understand the stock market or want to avoid its risk, then UPS is a safe option.

When should you stay in NPS?

Expectation of higher returns: If you want to grow your retirement fund faster by taking a little risk, then NPS can prove to be a better option.

Tax saving is a priority: If you want to avail tax benefits of up to Rs 2 lakh every year, then NPS is a great option.

Early retirement or flexibility: NPS gives you the flexibility to choose your investment strategy and you can also make additional contributions as per your wish.