UPS vs NPS: What changes for govt staff and what to decide before Sept 30 deadline

With just days left before the September 30 deadline, lakhs of central government employees face a pivotal choice between the National Pension System (NPS) and the newly launched Unified Pension Scheme (UPS)—a decision that could define their financial security post-retirement.

What began as a move to placate employee unions demanding a return to the old pension scheme has now become a high-stakes deadline. As the government opened the one-time option to switch from NPS to UPS and vice versa, it simultaneously tightened the rules and clarified the tax benefits—putting pressure on nearly 23 lakh central government employees to act fast.

On September 2, 2025, the Centre allowed those who opt for UPS by the deadline to switch back to NPS—but only once, and only if they do so at least a year before retirement or three months ahead of voluntary retirement. The offer excludes employees facing disciplinary actions, dismissal, or compulsory retirement.

In a bid to prevent technical logjams, the Pension Fund Regulatory and Development Authority (PFRDA) permitted physical form submissions to nodal offices, especially for employees abroad or in areas with poor digital infrastructure. The forms must still reach authorities by September 30.

For new joinees between April and August 2025 who had already opted for NPS, the PFRDA has allowed migration to UPS as well—provided their choice is finalised within the same window. Once a switch is made to NPS, they cannot return to UPS.

The government has also addressed tax uncertainties, confirming parity between NPS and UPS for fiscal year 2025–26. Contributions from both employer and employee qualify for deductions under Sections 80CCD(1) and 80CCD(2) of the Income Tax Act. Withdrawals up to 60% of the corpus at retirement are tax-exempt under Section 10, along with partial withdrawals of employee contributions.

Notably, a government-backed UPS-NPS calculator now available on the National Pension Trust’s website allows employees to simulate retirement benefits based on factors like years of service, pay, and estimated corpus.

With no extension expected beyond September 30, employees are scrambling to weigh their long-term returns, tax implications, and the flexibility of each scheme.