6 investment options for central govt employees to optimise pension under NPS and UPS

The Ministry of Finance recently approved the extension of two new investment options - LC75 and BLC - for central government employees under the National Pension System (NPS) and Unified Pension Scheme (UPS).

The addition of the two new schemes makes retirement planning through NPS and UPS more flexible for central government employees. They can also use the new and existing investment options to manage their retirement corpus as per their individual needs and risk appetites.

Now, there are a total of six investment options under NPS and UPS for central government employees. Let's look at each of them:

In the default scheme, each pension fund manager is required to invest up to 50% in Government Securities and Related Investments, up to 45% in Debt Instruments and Related Investments, up to 5% in Short-term Debt Instruments and Related Investments, up to 15% in Equities and Related Investments and up to 5% in Asset Backed, Trust Structured and Miscellaneous Investments.

Thus the default option has a very low equity exposure of up to 15%.

Further, contributions under the default option is managed in a predefined proportion by three pension fund managers: SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited.

The availability of six investment options under NPS and UPS now allow employees to select options that best suit their retirement goals and risk preferences.

The new investment options follow a glide path mechanism where equity allocation automatically reduces with age — 15% for LC75 and 35% for BLC by age 55. This methodology ensures protection against large market fluctuations as retirement approaches.

Further, broadened auto choice options under NPS and UPS provide more diversified choices for retirement planning, reflecting employees’ varied risk-return preferences.

Central government employees can use the six investments to maximise their pension by structuring their retirement savings according to their individual risk-return preferences.