NPS vs OPS vs UPS

The Old Pension Scheme, the National Pension System, and the Unified Pension Scheme are the three pension arrangements a central government employee can be on, and which one applies is fixed by the date of joining, not by choice. The Old Pension Scheme (OPS) is a non-contributory defined benefit that pays half the last pay as pension, closed to those who joined from 1 January 2004. The National Pension System (NPS) is a contributory, market-linked scheme, mandatory for that later cohort, that builds a corpus and buys an annuity. The Unified Pension Scheme (UPS), an option within NPS from 1 April 2025, restores an assured 50 per cent pension while keeping the contributory structure.

The difference between them is, at heart, who carries the risk. Under the Old Pension Scheme the government carried the cost and the longevity risk, paying a defined pension from the current budget. Under the National Pension System that risk shifted to the employee: the government’s obligation ends with its contribution, and the eventual pension depends on how the corpus grows and what annuity it buys. The Unified Pension Scheme is the government’s answer to the long campaign to reverse that shift: it brings back the certainty of a defined pension without returning to the unfunded model, by adding a government-backed guarantee on top of a funded corpus.

This article compares the three across every dimension that matters to an employee or pensioner: who is on which, what you and the government contribute, the pension each pays and whether it is assured, the lump sum at retirement, dearness relief and inflation protection, the family pension, and the income-tax treatment. It closes with the practical question an NPS employee faced in 2025, whether to opt for the Unified Pension Scheme, and points to the calculators that put your own figures against all three. Every load-bearing figure is cited to the governing rule, regulation, or notification.

The three schemes at a glance

The table below sets the three side by side on the points that decide the outcome. The rest of the article works through each row.

Who is on which scheme

The scheme is not a choice for most employees; it follows from when they joined. An employee who joined central government service before 1 January 2004 is on the Old Pension Scheme, governed by the CCS (Pension) Rules, 2021 (which replaced the 1972 rules). An employee who joined on or after 1 January 2004 is on the National Pension System, mandatory for that cohort, other than the armed forces, under the notification that closed OPS to new entrants.

The Unified Pension Scheme changed the picture for the NPS cohort. Operative from 1 April 2025, it is an option, not a replacement: an NPS employee could choose to move to UPS, but the choice, once made, is final. Three categories could opt in: employees in service on 1 April 2025, new recruits joining on or after that date, and past retirees who had already left under NPS, along with the spouse of a deceased subscriber. The enrolment window for serving employees closed on 30 November 2025, after an extension from the original 30 June; a new recruit gets 30 days from joining. A reported “31 March 2026 extension” was a rumour and never issued.

So the practical position in 2026 is three cohorts: pre-2004 employees and pensioners on OPS; post-2004 employees who stayed on NPS; and post-2004 employees who opted for UPS. An employee cannot elect OPS if they joined from 2004; their real choice, during the window, was between NPS and UPS.

Why the Old Pension Scheme closed and UPS came

The three schemes are layers of a two-decade policy shift. The Old Pension Scheme was the norm for every central government employee until the turn of the century. It was a defined benefit funded from the current budget, and as the workforce and life expectancy grew, the unfunded pension bill became a rising claim on the exchequer, with no corpus set aside against it. To contain that liability, the government closed the Old Pension Scheme to new entrants and introduced a defined-contribution scheme, the New Pension Scheme, later renamed the National Pension System, for everyone joining central service on or after 1 January 2004. The reform moved the government from an open-ended promise to a fixed contribution, transferring the investment and longevity risk to the employee.

That transfer was contested from the start. Employee associations campaigned for two decades to restore the Old Pension Scheme, and several state governments announced a return to it for their own staff. The central government did not reopen OPS, but in response it approved the Unified Pension Scheme in August 2024 and operationalised it from 1 April 2025. UPS is the compromise: it restores the assured 50 per cent pension that employees wanted, but keeps the funded, contributory structure that the exchequer needed, bridging the two with a government-backed guarantee and a pooled corpus. It is best understood not as a fourth scheme but as an assured overlay on NPS.

Contributions: what you and the government pay

The schemes differ first in what goes in. The Old Pension Scheme is non-contributory: the employee pays nothing towards the pension during service, and the government funds it from the current budget when it falls due. That is what makes OPS generous for the employee and expensive for the government, and it is the reason it was closed.

The National Pension System is contributory. The employee contributes 10 per cent of basic pay plus dearness allowance, and the government contributes 14 per cent of the same base to the employee’s Tier-I account. The government’s share was 10 per cent when NPS began and was raised to 14 per cent with effect from 1 April 2019. Both contributions are invested, and the rupee amount rises with every increment and dearness-allowance revision, since the base is basic pay plus DA.

The Unified Pension Scheme keeps the employee’s 10 per cent but splits the government’s contribution. The government pays 10 per cent to the employee’s individual corpus, matching the employee rather than the 14 per cent it pays under plain NPS, and contributes an estimated 8.5 per cent of aggregate pay to a separate pooled corpus that funds the assured payout. So the total government outgo, about 18.5 per cent, is higher than the 14 per cent under NPS, but the part credited to the employee’s own account is lower, 10 instead of 14 per cent. That reallocation, from the individual account to the pool, is the mechanism that pays for the guarantee, and it is the single most misunderstood figure in the scheme: the government’s individual-account share under UPS is 10 per cent, not 14.

Account structure, portability, and the provident fund

The schemes differ in how the money is held and whether it moves with the employee. The Old Pension Scheme has no individual account for the pension; the pension is a promise, recorded on the pension payment order at retirement, not a balance. Alongside it, an OPS employee subscribes to the General Provident Fund, a separate retirement saving into which the employee contributes and which earns a government-declared quarterly rate, paid out as a lump sum at retirement. So an OPS employee reaches retirement with two pots: the pension, from the government, and the provident fund, from their own saving.

The National Pension System and the Unified Pension Scheme both run on an individual account, the Tier-I account under a Permanent Retirement Account Number, and there is no General Provident Fund for the NPS or UPS cohort; the Tier-I corpus takes its place. The account is portable: it stays with the employee across postings, which the promise-based Old Pension Scheme was not. An optional Tier-II account is available as a savings add-on with no lock-in. The practical consequence is that an OPS employee’s own retirement saving sits in a separate provident fund, while an NPS or UPS employee’s sits inside the same Tier-I corpus that also funds the pension, which is one reason the NPS lump sum looms so large in the comparison.

The pension: assured against market-linked

This is the decisive difference. Under the Old Pension Scheme the pension is 50 per cent of emoluments, meaning the last drawn basic pay, or 50 per cent of the average of the last 10 months, whichever is more beneficial, under Rule 44 of the CCS (Pension) Rules, 2021. It is assured, subject to a minimum of Rs. 9,000 and a maximum of Rs. 1,25,000 a month, and since 1 January 2006 the full 50 per cent is no longer linked to 33 years of service; ten years of qualifying service is enough.

Under the National Pension System there is no assured pension. The corpus is whatever the contributions and market returns build to; at retirement at least 40 per cent of it must buy an annuity from an insurer, and the annuity rate at that time sets the pension. A larger corpus or a better annuity rate means a higher pension, and a market downturn near retirement means a lower one. The pension is not a defined share of pay; it is the yield of an accumulated pot.

The Unified Pension Scheme brings back the assurance. The assured payout is 50 per cent of the average basic pay of the last 12 months before superannuation, for 25 years of qualifying service, and proportionately less for shorter service, with a floor of Rs. 10,000 a month for at least ten years. It is defined against pay, like OPS, not against the corpus. The catch is the benchmark corpus: the full assured payout holds only if the individual corpus is at least the amount that would accumulate from the default contributions with no withdrawals. Where the corpus falls short, because contributions were missed or a non-default fund underperformed, the payout is reduced in proportion. In the ordinary case of full, default contributions, the assured 50 per cent is what the employee receives.

For a serving employee the practical read is that OPS and UPS deliver a very similar monthly pension, close to half of pay, while the NPS pension is generally lower for the same career, because only 40 per cent of the corpus is annuitised and the annuity is bought at market rates. The OPS vs NPS vs UPS calculator shows the three figures for your own pay and service.

The lump sum at retirement

All three can put a lump sum in the retiree’s hands, but by different routes, and the difference matters.

Under the Old Pension Scheme there is no separate lump sum; the only way to a lump sum is commutation, exchanging up to 40 per cent of the pension for a one-time amount, which reduces the monthly pension for 15 years until it is restored. The commuted lump sum is tax-free, but it is a trade, not a bonus: you give up pension to get it. The commutation of pension calculator works out the amounts.

Under the National Pension System the lump sum is large and separate. At superannuation up to 60 per cent of the corpus can be taken as a tax-free lump sum, exempt under Section 10(12A), with the balance buying the annuity. Over a full career the corpus can run to several crore, so the 60 per cent lump sum is often the headline attraction of NPS, offsetting its lower monthly pension. From 16 December 2025 the small-corpus rules were eased: a corpus up to Rs. 8 lakh may be taken in full, and Rs. 8 to 12 lakh allows up to Rs. 6 lakh as a lump sum.

Under the Unified Pension Scheme the lump sum is a defined benefit in its own right. At superannuation the employee receives one-tenth of the monthly emoluments, basic pay plus dearness allowance, for every completed six months of qualifying service, in addition to the assured payout and without reducing it. For a 30-year career that is about three months’ pay. It is smaller than the NPS 60 per cent lump sum but does not come at the cost of the pension.

Dearness relief and inflation protection

Over a retirement of two or three decades, inflation protection is worth as much as the starting pension. Here the two assured schemes and the market scheme part company sharply.

The Old Pension Scheme and the Unified Pension Scheme both carry dearness relief, revised twice a year on the same basis and at the same rate as the dearness allowance of serving employees. So an OPS or UPS pension of Rs. 50,000 with dearness relief at 60 per cent is Rs. 80,000 in hand, and it rises with every dearness-relief order. Over a long retirement this indexation roughly doubles the real value of the pension compared with a level one.

The National Pension System annuity does not get dearness relief. The pension the annuity pays is generally level for life, or rises only if the retiree chose and paid for an increasing annuity, which starts lower. So even where the NPS pension starts close to an OPS or UPS pension, it falls behind in real terms every year, while the assured pensions keep pace. This is the least visible but most consequential difference over a full retirement, and it is why a straight comparison of the first month’s pension understates the gap.

Family pension

On the death of the pensioner, each scheme continues something to the family, again on different terms.

The Old Pension Scheme pays a family pension of 30 per cent of the last pay, enhanced to 50 per cent for the first ten years after a death in service, or seven years after retirement, subject to the same Rs. 9,000 floor, with dearness relief. The Unified Pension Scheme pays a family payout of 60 per cent of the payout the pensioner was drawing, for the life of the spouse, with dearness relief. The National Pension System has no defined family pension; what the family receives depends on the residual corpus and the type of annuity bought, so an annuity with return of purchase price or a joint-life annuity leaves more to the spouse than a single-life annuity that ends with the pensioner.

Leaving early: resignation and premature exit

The schemes also diverge sharply for an employee who leaves before the retirement age, which matters for a mobile workforce. Under the Old Pension Scheme a pension needs at least ten years of qualifying service; an employee who resigns before that receives only a service gratuity, not a pension, and a resignation, as distinct from a retirement, can forfeit past service altogether unless it is a technical resignation to take up another government post.

Under the National Pension System a premature exit before 60 is stricter on the pension but preserves the money: at least 80 per cent of the corpus must buy an annuity and only up to 20 per cent can be taken as a lump sum, the reverse of the 60-to-40 split at superannuation, because the purpose is a pension rather than an early withdrawal; a small corpus below Rs. 5 lakh can be taken in full. The Unified Pension Scheme, being an assured scheme, pays its assured payout only from the age of superannuation, so an earlier exit falls back to the NPS withdrawal rules on the accumulated corpus. For an employee likely to leave government mid-career, then, the funded schemes return the accumulated corpus, while the Old Pension Scheme returns little unless the ten-year bar is cleared.

Tax treatment

The three schemes are taxed differently during service and at exit. Under the Old Pension Scheme the employee makes no contribution, so there is no deduction to claim; the pension in retirement is taxable as salary, and the commuted lump sum is exempt.

Under the National Pension System the employee’s 10 per cent contribution is deductible under Section 80CCD(1), within the Rs. 1,50,000 ceiling, with a further Rs. 50,000 under Section 80CCD(1B); the government’s contribution is deductible under Section 80CCD(2) up to 14 per cent of salary, and Section 80CCD(2) is the one NPS deduction that survives under the new tax regime. At exit the 60 per cent lump sum is exempt under Section 10(12A), and the annuity pension is taxable in the year of receipt.

Under the Unified Pension Scheme the tax treatment was aligned with NPS by the Taxation Laws (Amendment) Act, 2025: the lump sum at retirement is exempt under Section 10(12AB), and the up-to-60 per cent final withdrawal under Section 10(12AA). The employee’s own 10 per cent is deductible under Section 80CCD(1), the government’s pooled contribution is not taxed in the employee’s hands, and the monthly payout is taxable as pension.

Which is better

There is no single answer, because the schemes are not open to the same people, but the trade-offs are clear.

The Old Pension Scheme is the most generous for the employee: a pension of half the last pay, indexed to inflation, with a family pension and a commutation option, all for no contribution. If it were open, it would win for almost everyone. It is not open to those who joined from 2004, so for that cohort the question is NPS against UPS.

Between the two, the Unified Pension Scheme is the choice for certainty. It assures the same 50 per cent of pay as OPS, indexed with dearness relief, and adds a lump sum, at the cost of the employee’s 10 per cent contribution and the benchmark-corpus condition. The National Pension System is the choice for those willing to carry market risk for a potentially larger outcome: it offers no assurance and a level, unindexed annuity, but it can build a large corpus of which 60 per cent is a tax-free lump sum, and it keeps the flexibility of a funded account. As a rough guide, UPS is more valuable unless the corpus earns a high enough return over a full career to beat the assured 50 per cent plus dearness relief, which requires sustained equity-like returns that the conservative government-sector default does not target. For most government employees seeking a predictable retirement income, UPS is the safer scheme; for those who value the lump sum and are comfortable with market outcomes, NPS retains an edge on the corpus.

The break-even is not a single number, but the logic is simple. UPS gives up 4 percentage points of government contribution to the individual account, the difference between 14 and 10 per cent, in exchange for the assured 50 per cent payout and its dearness relief. NPS wins only if the corpus, built partly on that extra 4 per cent, grows enough to buy an annuity that beats an inflation-linked 50 per cent of pay for life. Because the government-sector NPS default is invested conservatively, weighted to government securities and corporate bonds with a small equity share, and because the NPS annuity carries no dearness relief while the assured pensions do, the assured schemes are hard to beat on the monthly income over a long retirement. Where NPS can pull ahead is on total cash at retirement, since 60 per cent of a large corpus is a bigger one-time sum than the UPS lump sum, and on flexibility, since the corpus is the employee’s own account. The choice therefore turns on whether the retiree values a higher, guaranteed, inflation-proof monthly income, which points to UPS, or a larger lump sum with market upside and account control, which points to NPS.

Three worked scenarios

The trade-offs are easier to see with numbers. Take three employees, each retiring at 60 with a final basic pay of Rs. 2,00,000 a month and dearness relief at 60 per cent, differing only in the scheme they are on.

Under the Old Pension Scheme, the pension is 50 per cent of Rs. 2,00,000, that is Rs. 1,00,000 a month, and with dearness relief Rs. 1,60,000 in hand, rising with every dearness-relief order, plus the accumulated General Provident Fund balance as a lump sum and the option to commute part of the pension for more cash up front. The employee paid nothing towards the pension.

Under the Unified Pension Scheme, the assured payout is the same Rs. 1,00,000, Rs. 1,60,000 in hand with dearness relief, plus a defined lump sum of about three months’ emoluments, roughly Rs. 9 to 10 lakh for a full career, over and above the corpus. The employee contributed 10 per cent of pay throughout to reach the same monthly figure, with the guarantee resting on the corpus meeting its benchmark.

Under the National Pension System, the same career might build a corpus of a few crore, of which 60 per cent, well over a crore, is a tax-free lump sum, while the remaining 40 per cent buys an annuity paying perhaps Rs. 65,000 to Rs. 80,000 a month, level for life and without dearness relief. The NPS retiree has far more cash at retirement but a lower, unindexed monthly pension that erodes in real terms across the decades. The OPS vs NPS vs UPS calculator computes these figures for your own pay and service, and shows how sensitive the NPS outcome is to the return and annuity rate.

Should an NPS employee have switched to UPS

For the NPS cohort, the 2025 decision came down to whether the assured 50 per cent was worth giving up the 4 percentage points of government contribution that UPS diverts from the individual account to the pool. An employee who valued certainty, expected a full career of default contributions, and wanted an inflation-linked pension gained from UPS: the guarantee is worth more than the extra 4 per cent in the account for most conservative investors. An employee who expected strong market returns, wanted the full 60 per cent lump sum, or valued the flexibility of the funded account, had reason to stay on NPS. The window for serving employees closed on 30 November 2025, so the live question now is mainly for new recruits, who get 30 days from joining, and for anyone weighing the one-time switch back to NPS, on which the government contribution returns to 14 per cent.

Try the numbers

A comparison in the abstract only goes so far; the outcome turns on your pay, service, and the assumptions for NPS. The OPS vs NPS vs UPS calculator puts all three side by side from one set of figures, and the scheme-specific tools go deeper: the Rule 44 pension calculator for the OPS pension, the UPS payout calculator for the assured payout and lump sum, and the NPS corpus calculator for the projected corpus and the pension it buys.

See also

• Old Pension Scheme
• National Pension System
• Unified Pension Scheme
• Central government pension
• OPS vs NPS vs UPS calculator
• Rule 44 pension calculator
• UPS payout calculator
• NPS corpus calculator
• Commutation of pension
• Commutation of pension calculator
• Family pension
• Gratuity for central government employees
• Gratuity calculator
• Dearness relief
• Dearness allowance
• One Rank One Pension
• Income tax for government employees
• 7th Central Pay Commission
• Pay matrix
• Central government employees in India
• Minimum pay
• Pay fixation
• Department of Personnel and Training
• Department of Expenditure

External references

• Department of Pension and Pensioners’ Welfare
• Pension Fund Regulatory and Development Authority
• Department of Financial Services
• Central Board of Direct Taxes

References

1. CCS (Pension) Rules, 2021, Rule 44, the Old Pension Scheme pension at 50 per cent of emoluments, minimum Rs. 9,000, maximum Rs. 1,25,000; delinking of full pension from 33 years of service by DoPPW O.M. No. 38/37/08-P&PW(A) dated 10 December 2009, effective 1 January 2006.
2. Ministry of Finance, Department of Financial Services notification F. No. 1/3/2016-PR dated 31 January 2019, raising the government NPS contribution to 14 per cent of basic pay plus DA from 1 April 2019; CCS (Implementation of NPS) Rules, 2021 (G.S.R. 227(E), 30 March 2021).
3. PFRDA (Exits and Withdrawals under NPS) Regulations, 2015, Regulation 3, as amended with effect from 16 December 2025: at least 40 per cent annuity and up to 60 per cent lump sum at superannuation, full withdrawal up to Rs. 8 lakh.
4. Ministry of Finance notification F. No. FX-1/3/2024-PR dated 24 January 2025 notifying the Unified Pension Scheme; PFRDA (Operationalisation of UPS under NPS) Regulations, 2025 (19 March 2025); CCS (Implementation of UPS under NPS) Rules, 2025 (2 September 2025).
5. Income-tax Act, 1961, Section 10(12A) (NPS lump sum), Sections 10(12AA) and 10(12AB) (UPS, inserted by the Taxation Laws (Amendment) Act, 2025), and Sections 80CCD(1), 80CCD(1B), 80CCD(2).