Central government employees must decide between the Unified Pension Scheme (UPS) and the National Pension Scheme (NPS) before June. We have already published calculators and opinions on the subject, as regular readers may know.
Here are some articles from the full UPS archive.
- Why I will not opt for the unified pension scheme
- UPS vs NPS Calculator
- Using Withdrawal Rates to compare Unified Pension Scheme and National Pension Scheme
In spite of this, many readers are still unable to choose. Also these calculators have many projections which may or may not pan out as expected in future. Therefore I thought it best to suggest a simple personalized framework to choose between NPS and UPS.
Question: How dependent are you on the NPS? Suppose the NPS corpus goes to zero (for some imaginary reason) either now or at the time of retirement, will you still be financially independent?
If you say, yes, then you are not too reliant on the NPS. It maybe a big chunk, but you have investment elsewhere to comfortably fund your retirement. This is the case for as I have mentioned earlier (see links above). Therefore you can afford to stay in the NPS.
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Even if the NPS is the dominant retirement instrument today, if you can manage to invest enough in other instruments going forward and if they are expected to out-weigh the NPS, and you are confident of managing the corpus on your own, you can stick to the NPS.
If you say, no, then you are dependent on the NPS. Most likely this is because your salary to expenses gap is not too high and you are not able to invest enough for retirement elsewhere. This scenario is unlikely to change for most goverment employees.
If NPS is the primary or only retirement investment you have, then it is perhaps best that you switch to the UPS for a reasonable pension. Please try to invest as much as possible in other instruments with a plan.
If you cannot answer a clear yes or no to the above question, then you can ask, should a pension be the most important component of my retirement plan or should it be a component?
In other words, am I capable of managing my retirement corpus on my own or with the help of a SEBI registere fee-only advisor charging a fixed flat fee? Or should I primarily rely on a pension and invest the remaining little corpus in safe instruments like post schemes etc.?
If you are capable of managing your own corpus (assuming you have have enough by retirement – check if you can invest enough including thr NPS contribution), then you can stay with the NPS. Else switch to the UPS.
I have a high government salary but I am not comfortable managing my own corpus after rertirement. I prefer the safety of a pension. What should I do? Switch to UPS. Take professional advise for remaining investments.
The option for those in lower salary slabs is also quite clear: switch to the UPS. The confusion is only for those in the mid-salary slabs.
Many people assume that if they stick with the NPS and choose a higher equity allocation, they are sure to beat the UPS benchmark corpus especially if they have several years of service left. While this seems reasonable, this is not a given. So have a solid risk reduction plan in place.
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