Why the 'better' Unified Pension Scheme (UPS) has so few takers: Is confusion the biggest hurdle?

Despite the option to switch, the vast majority of central government employees are sticking with the National Pension System (NPS) over the Unified Pension Scheme (UPS).

According to Mumbai-based income tax and investment expert Balwant Jain, UPS is definitely better, more efficient, and more reliable, but surprisingly, not many people are opting for it yet.

"The irony of the situation is that the Unified Pension Scheme is fundamentally a superior product for individuals who prioritise safety, offering a guaranteed pension and taking away market risk. Yet, we see very few takers for it. This low adoption points to a lack of clarity: people simply haven't grasped the working mechanism of UPS," pointed out Balwant Jain.

UPS is a good scheme that provides a pension. It’s suitable for people who prefer safety over risk, but many still don’t fully understand how it works.

"The Unified Pension Scheme (UPS), effective April 1, 2025, guarantees a minimum pension of ₹10,000 on retirement and allows a tax-free withdrawal of up to 60% of the accumulated corpus. Employees with 25 years of service receive a pension equal to 50% of their final average basic pay. Contributions involve the government giving 18.5% and the employee giving 10% of basic pay plus DA," said Jain.

“Many people don’t really understand how the NPS and the new UPS schemes work; that lack of awareness, confusion is one of the main reasons for few UPS adoption,” added Balwant Jain.

NPS vs UPS: Which is suitable for whom?

For new government employees, NPS offers higher long-term return potential, but for those seeking guaranteed income with minimal risk, UPS is the better choice.

"For a government employee starting their career, the NPS, with its equity component, holds the potential for better long-term returns. But for anyone who values guaranteed income and has a low ability or desire to take market risk, the UPS is the clear and superior choice," explained Balwant Jain.

NPS-UPS switch new deadline

NPS vs UPS

The main difference between NPS and UPS is how they handle risk and returns.

The National Pension System is driven by the market. The pension you get depends on how its investments (stocks, bonds, etc.) perform.

It is designed for people who prefer a steady, fixed payout and have a low risk appetite, prioritising certainty over the potential for higher market-linked gains.