NPS (National Pension System) RULES CHAPTER 1 TO 14 AND THE UPS(Union Pension Scheme / Old Pension Scheme) Govt. Pension YOJANA 2025

NPS (National Pension System) RULES AND THE UPS(Union Pension Scheme / Old Pension Scheme) Govt. Pension YOJANA 2025

NPS Rules and UPS Pension Yojana – Complete Information

Introduction

In India, retirement security has become an important subject due to the increasing life expectancy and financial needs after service. To ensure financial stability for retired employees, the Government of India has implemented various pension schemes. Two of the most discussed systems are the National Pension System (NPS) and the Union/Old Pension Scheme (UPS/OPS). While both aim to provide social security and regular income in old age, their rules, structures, and benefits differ significantly.

National Pension System (NPS)

What is NPS?

The National Pension System is a government-backed, voluntary retirement savings scheme launched in 2004 (initially for government employees and later extended to all citizens in 2009). It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The NPS allows individuals to contribute a portion of their salary or income into a pension account throughout their working years, which later provides them with a lump sum and annuity (monthly pension) after retirement.

NPS Rules and Features

1. Eligibility:

Any Indian citizen aged 18 to 70 years can join.

Both government and private employees, as well as self-employed individuals, are eligible.

2. Types of Accounts:

Tier I Account – Mandatory retirement account. Withdrawal restrictions apply, and tax benefits are available.

Tier II Account – Voluntary savings account with easier withdrawal rules but fewer tax benefits.

3.Contribution Rules:

Minimum contribution for Tier I is ₹500 per contribution and ₹1,000 per year.

There is no maximum limit, but tax exemptions apply up to certain levels under Section 80C and 80CCD of the Income Tax Act.

4. Withdrawal Rules:

On retirement at 60 years, at least 40% of the accumulated corpus must be used to purchase an annuity(monthly pension).

The remaining 60% can be withdrawn as a lump sum (which is tax-free).

Partial withdrawals are allowed for education, marriage, or medical treatment after a few years of contribution.

5.Investment Options:

NPS funds are invested in a mix of equity, government securities, and corporate bonds.

Subscribers can choose their preferred mix (Active Choice) or let it be automatically managed (Auto Choice).

6.Tax Benefits:

Deduction up to ₹1.5 lakh under Section 80C.

Additional ₹50,000 under Section 80CCD(1B), making it a very tax-efficient retirement product.

1. Advantages of NPS

* Long-term retirement savings with market-linked returns.

* Flexibility in choosing investment options.

* Regulated and safe under PFRDA.

* Extra tax benefits compared to many other schemes.

Limitations of NPS

* Market risk due to equity exposure.

* Mandatory annuity purchase reduces liquidity.

* Pension (annuity) received is taxable.

UPS/OPS Pension Yojana (Old Pension Scheme)

What is OPS?

The Union Pension Scheme (often referred to as the Old Pension Scheme – OPS)was the pension system that existed before NPS. Under OPS, government employees were assured a defined benefit pension after retirement. It worked on the principle of “pay as you go”, where the government paid pension from its current revenues rather than from accumulated savings.

Key Features of OPS

1.Eligibility :

* Applicable to government employees who joined service before 1st January 2004.

* Employees joining after this date are automatically enrolled in NPS.

2. Pension Calculation:

* Pension was calculated as **50% of the last drawn salary (basic pay + dearness allowance)**.

* The amount increased over time with dearness relief (inflation adjustment).

3. Contribution:

* Employees did not need to contribute any portion of their salary.

* Entire pension liability was borne by the government.

4. Benefits :

* Lifetime assured pension.

* Family pension in case of death of the employee.

* Full inflation adjustment (DA linked).

* Gratuity and leave encashment benefits.

5. Drawbacks :

* Heavy financial burden on the government.

* Rising pension liabilities due to increasing life expectancy.

* No corpus generation or investment growth like NPS.

Comparison between NPS and OPS/UPS

| Feature | NPS | OPS (UPS) |

| **Type** | Defined contribution | Defined benefit |

| **Start Year** | 2004 onwards | Before 2004 |

| **Employee Contribution** | Yes (10% of basic salary + DA for govt employees) | No contribution |

| **Pension Guarantee** | Market-linked, not fixed | Assured 50% of last salary |

| **Burden on Government** | Reduced | Very High |

| **Portability** | Yes, across jobs | Limited to govt jobs |

| **Tax Benefits** | Available (80C + 80CCD(1B) | Limited (pension taxable) |

| **Flexibility** | Investment choice available | No flexibility |

Current Scenario and Debate

* Many state governments and employee unions demand a return to the **Old Pension Scheme** due to its security and guaranteed benefits.

* However, the central government continues to support **NPS**, as OPS creates long-term fiscal stress on the exchequer.

* Some states like Rajasthan, Chhattisgarh, and Himachal Pradesh have announced a return to OPS, sparking national debate.

Conclusion

Both **NPS** and **OPS (UPS Pension Yojana)** serve the same purpose of ensuring financial security post-retirement but follow different models. **NPS is sustainable, investment-based, and tax-efficient**, while **OPS guarantees fixed pensions but increases government liabilities**. For future generations, NPS appears more practical, but for employees, OPS remains more attractive due to its assured benefits.

Thus, understanding both systems is crucial for employees, policymakers, and citizens to strike a balance between financial stability and retirement security.