OPS vs NPS vs UPS: Which of 3 will offer highest monthly pension on Rs 900,000 annual income; know expert calculations

OPS vs NPS vs UPS Pension Calculations: In the Old Pension System (OPS), employees invest 10 per cent of their monthly salary along with basic and dearness allowance, while the government contributing 14 per cent. National Pension Scheme (NPS) funds invest in equity, corporate debt, government bonds, and alternative Investment funds.

Old Pension Scheme, New Pension Scheme, and Unified Pension Scheme are the three options available as retirement pension schemes. Photo: Pixabay/Representational

Retirement Planning: The central government recently came up with the announcement of the Unified Pension Scheme (UPS). Before this, the key pension schemes in India were the Old Pension Scheme (OPS) and the National Pension Scheme (NPS). The OPS was launched in 1924. When India became independent in 1947, the OPS continued. In 1998, the retirement age in the OPS was increased from 58 to 60.

The central government launched the NPS in 2004 for central government employees.

The scheme was extended to private sector employees and NRIs in 2009.

The UPS is the latest addition in the history of pension schemes in India.

All three schemes provide a monthly pension to their subscribers, but amounts vary in each of them.

In this write-up, through calculations by Krishan Mishra, CEO, FPSB India, we will tell you that an employee who is 42 years old and has an annual salary of Rs 900,000, with a basic pay of Rs 7,80,000 yearly for the next 18 years, would get the monthly pension under OPS, NPS, and UPS.

SCHEME	DETAILS	ASSUMPTIONS	PENSION
Old Pension Scheme	The OPS is a defined benefit pension plan, which typically calculates the pension based on the last drawn salary and the years of service.	Pension= 50% of Last Drawn Basic Pay × Years of Service	The monthly pension would be approximately Rs 48,750/-
		780000/12=65,000
		So, 65000/2 x 18 = 585,000 per annum
New Pension Scheme	NPS is a defined contribution scheme, where both the employee and employer contribute a percentage of the employee’s basic salary. The pension depends on the accumulated corpus and how much of it is used to purchase an annuity.	· Employee Contribution: 10% of basic pay (INR 78,000)	Monthly Pension would be approximately Rs 18,400/- per month.
		· Employer Contribution: 10% of basic pay (INR 78,000) (assuming a government employee scenario)
		· Return on Investment: 8% per annum
		· Annuity Rate: 6% at retirement

		Corpus=P×[(1+r)t−1]÷r
		Approximate corpus at retirement = Rs 6.9 million
		Monthly Pension: Assuming 40% of the corpus is used to purchase an annuity at 6%, then
		Monthly Pension= (6.9× 40% × 6%) ÷ 12= Rs 18,400 per month
Unified Pension Scheme	The Unified Pension Scheme (UPS) is an idea aimed at consolidating multiple pension systems, like the Old Pension Scheme (OPS) and the National Pension System (NPS), into a single framework, with an aims to harmonize the best aspects of OPS and NPS into a single scheme.	· Hybrid Formula: A percentage of the OPS pension combined with an NPS-like contribution benefit.	a monthly pension of approximately Rs 29,000/-.
		· Pension: 50% of OPS benefit + Annuity from a smaller NPS-like corpus
		As per the above, a potential hybrid model combining elements of OPS and NPS might offer a monthly pension of approximately Rs 29,000, factoring in both a partial defined benefit and a contribution-based annuity.

Chart Courtesy: Krishan Mishra, CEO, FPSB India

Explaining all three scenarios, Mishra said, "Under the Old Pension Scheme (OPS), which is a defined benefit scheme, the individual is likely to receive an annual pension of approximately Rs 585,000, translating to a monthly pension of around Rs 48,750, assuming they retire at 60."

About the NPS pension, he said, "The New Pension Scheme (NPS), being a defined contribution scheme, would provide a monthly pension of around Rs 18,400. This figure is based on an estimated corpus of Rs 6.9 million accumulated over 18 years, assuming an 8 per cent annual return and 6 per cent annuity rate at retirement. Depending on market performance, and the type of fund chosen (growth, balanced, or debt fund), the rate of return can be much higher."

Describing the monthly pension under UPS, he said, "The Unified Pension Scheme (UPS) offers a potential hybrid model combining elements of OPS and NPS that offer a monthly pension of approximately Rs 29,000, factoring in both a partial defined benefit and a contribution-based annuity.

Mishra opines, "The Unified Pension Scheme (UPS) represents a forward-thinking approach to pension reform by combining the stability of the Old Pension Scheme (OPS) with the flexibility of the National Pension System (NPS). By offering a hybrid model, UPS aims to provide a secure post-retirement income while capping fiscal impact on the government. It simplifies pension management, ensuring uniform benefits across sectors."

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