The NPS Wrap-Up: Myths, Mindsets & Long-Term Gains
After covering everything from Tier 1 and Tier 2 accounts to annuities, withdrawals, and tax benefits, the final episode of the 'NPS Made Simple' series brings it all together in a rapid-fire format, packed with bite-sized insights and some bigger reflections on retirement planning.
This episode with Subhasis Ghosh, CEO of Kotak Pension Fund, cuts through the noise around retirement myths, SIPs vs lump-sum, early retirement, and even how to explain the NPS to a 7-year-old.
The debate ends here. According to Ghosh, SIP (Systematic Investment Plan) wins hands down, especially when market timing is uncertain. Regular investing not only smooths out market volatility but also builds long-term financial discipline. "Time in the market is more important than timing the market," he emphasizes.
While most seasoned investors focus on Tier 1 for its retirement benefits, Ghosh points out that Tier 2 is often overlooked. 'It's flexible, easy to withdraw, and offers the same low fund management cost,' he explains. Investors can use Tier 2 for short-term savings and even transfer it to Tier 1 later for tax benefits. Think of it as your liquidity cushion with long-term advantages.
One of the biggest misconceptions about NPS, Ghosh says, is that your money is 'locked forever.' That's far from true. While Tier 1 is designed for retirement, it allows partial withdrawals for emergencies. And Tier 2 offers complete flexibility.
In one of the most thoughtful moments in the series, Ghosh shares a personal take on what retirement means. 'It's not about stopping work,' he says. 'It's about doing what you couldn't do earlier.' Whether it's joining an NGO, traveling, or mentoring, staying engaged is key—not just for financial security but also for emotional and mental well-being.
The final episode also dives into the FIRE movement. Can the average salaried employee in India realistically retire early? 'It's possible—but only if your lifestyle is sustainable and you start saving early,' Ghosh shares. Still, he cautions against seeing FIRE as an end in itself. "You have a talent—use it for society. How much can you swim in the sea or walk in the hills?"
Ghosh wraps up with a powerful call for financial literacy, beginning at home. He introduces NPS VatSLay, a scheme that allows parents to open accounts for children from birth till age 18. 'Start early. Make them see the power of savings. That's the best gift you can give your child.'
NPS, he says, isn't just a product. It's a mindset about taking charge of your future and making intentional choices. With India at the cusp of an economic transformation and the cost of living on the rise, planning today can give you the freedom to live fully tomorrow.
Watch Episode 10 and start planning your retirement journey with clarity, confidence, and a long-term perspective.
First Published: 29 Apr 2025, 06:04 PM IST
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
32 minutes ago
- Time of India
Is UPS better than NPS for government employees? Here's how to decide
Tired of too many ads? Remove Ads Bringing back the safety net Tired of too many ads? Remove Ads Who is eligible for UPS? Existing central government employees covered under NPS and in service as on 1 April 2025 (Form A2) A central government employee who was covered under NPS and who has superannuated or retired before 31 March 2025 (Form B2) New recruits joining central government services on or after 1 April 2025 (Form A1) Legally wedded spouse of a retired or superannuated central government employee covered under NPS and expired before exercising option for UPS (Form B6) What ails UPS Tired of too many ads? Remove Ads NPS holds a few aces Choose your champion wisely If qualifying service period is more than 10 years but less than 25 years, proportionate payout is payable. If individual corpus is less than the benchmark corpus as on the date of superannuation or voluntary retirement. If subscriber opts for final withdrawal not exceeding 60% of the individual corpus, payout is proportionately reduced. Over 27 lakh eligible central government employees face a critical choice—one that will shape how comfortably they live in their post-retirement years. By 30 June, they must decide whether to continue with the National Pension System (NPS) or switch to the newly rolled out Unified Pension Scheme (UPS) as their retirement chariot. This switch can only be exercised once. It cannot be reversed later. New employees joining the government can also opt for the UPS within 30 days of their joining service. Even as the UPS brings back guaranteed payouts, the NPS offers greater flexibility and potentially a bigger nest egg. Choose your champion UPS, operational since 1 April 2025, was introduced by the government as an alternative to the NPS. The latter has many sceptics. The biggest gripe with NPS is that it took away the fixed security net of the guaranteed pension under the previous 'defined benefit' regime. This assured monthly paycheque was replaced with the NPS' market-linked retiral benefits. Here, only the contributions are fixed, the payout is not. The retiral benefits are a function of the accumulated corpus, which itself is vulnerable to market risks. For pension after retirement, the NPS mandates purchase of an annuity out of this accumulated corpus, which locks subscribers into annuity rates offered by the insurer. 'You have no idea what annuity rates will be 20 or 30 years later. If you are offered a poor rate at the time of annuity, your lifetime returns stretching from accumulation phase into the vesting phase fall sharply, even if actual NPS returns were far better,' points out Ravi Saraogi, Co-founder, Samasthiti UPS primarily seeks to address these perceived shortcomings. First, it includes provisions for a guaranteed pension payout after retirement. If you work for 25 years or more in a central government posting, you will receive 50% of your average pay for the preceding 12 months as pension. A pension of Rs.10,000 per month is payable after a minimum of 10 years of service. For service periods between 10 and 25 years, the pension payout will be proportional to the years of the pension payout under the UPS will be indexed to inflation, through regular tweaks in the dearness relief. This offers lifestyle protection for retiring subscribers, a missing component in the NPS. 'UPS has an inbuilt feature of dearness relief. While NPS subscribers can also avail of increasing annuity plan, this comes at the cost of lower annuity rate,' points out Deepesh Raghaw, Founder, the UPS, employees contribute 10% of their basic pay, plus dearness allowance, which is matched by the employer. Additionally, the government contributes another 8.5% towards a separate pooled fund, taking its contribution to 18.5% — higher than the 14% offered under the NPS. Also, the UPS provides for the payment of a one-time lump sum equivalent to one-tenth of the last drawn basic pay plus dearness allowance (DA) for each completed six months of qualifying service. For 25 years of service, this is equivalent to five months' first glance, the UPS seems appealing with an assured, predictable income stream after retirement. The pension simply gets linked to the last drawn salary. Market behaviour has no bearing on this has the edge over NPS in longevity, experts say. Saraogi indicates the lifetime IRR (internal rate of return) for a UPS subscriber who starts earning at age 25 (starting basic pay of `6 lakh a year) works out to 9.37%, assuming salary increases by 8% yearly by age 60 and pension increases at 5% until age 90. To deliver the same lifetime return, NPS must earn 12.24% during the accumulation phase (assuming the individual buys 100% annuity from his NPS corpus at age 60 at the annuity rate of 6%). For a person starting at age 35, the UPS IRR stands at 11.09%. To beat this, NPS corpus must earn a meaty 16.12%. The break-even rate for NPS rises sharply when the individual has 10 fewer years of accumulation. If starting at age 45, the UPS IRR stands at 12.02%, which can only be matched by NPS if it fetches a princely 21.78% in its accumulation is a high bar for an asset allocation product that gradually pares back equity exposure over time. 'The break-even rates for NPS to beat UPS return over longer time frames are very high. UPS is a clear winner for sustaining a longer lifespan,' avers Saraogi. Over the last five years, the return from a 50:25:25 NPS portfolio split between 50% in equity, 25% in government securities and 25% in corporate bonds has fetched a healthy 14.68% annualised return. This return was riding on outsized 22% annualised return from NPS equity plans. However, returns typically moderate over longer time frames. Over the past 10 years, the 50:25:25 NPS portfolio has yielded a modest 10.8% return. Equity returns are likely to moderate further in the coming decades as the economy matures. This suggests that NPS investors must target larger contributions to match the assured pension payouts of UPS. Basavaraj Tonagatti, Founder and Partner, BasuNivesh Fee-Only Financial Planners, asserts, 'People who are relying entirely on NPS for their retirement corpus and are likely to run a withdrawal rate higher than 4% should consider opting for the UPS.'Employees who retire after completing at least 10 years of government service or those who voluntarily retire after 25 years of service become eligible for UPS benefits'UPS is a safetyfirst approach built on certainty whereas NPS is built on a probabilistic approach with multiple unknowns.'CO-FOUNDER, SAMASTHITI ADVISORSIf you dig deeper, the sweetener of inflation linked, guaranteed pension in the UPS masks several even as the employer contributes 18.5% of basic pay plus DA under the UPS, this is split between two accounts. Only 10% goes directly to the 'individual corpus', matching the employee's own contribution. The remaining 8.5% goes towards a 'pool corpus', which is separately managed by the government. It is simply a provision to enhance the stability and sustainability of the entire pension scheme . This portion will not be paid to the subscriber on maturity. So the contributions under UPS total 20%, not 28.5%. Comparatively, NPS offers a higher direct contribution from the government at 14%, taking the total contributions to 24%.Two, the assured payout in UPS can reduce substantially in specific conditions. To qualify for the full 50% assured payout, the retiree's individual corpus must equal the UPS benchmark corpus upon retirement. Benchmark corpus is a notional value that acts as a reference point for evaluating whether a subscriber's total accumulated corpus at the time of retirement is sufficient. Even as subscribers are allowed to choose from different investment plans, the calculations assume that contributions are invested in the default pattern. Currently, the default pattern of NPS invests 85% in government and corporate bonds and 15% in equities. But subscribers have the choice of investing in a 100% government securities plan (for those seeking safety) as well as two lifecycle funds with equity exposure capped at 25% and 50% respectively (for those seeking higher return). Now, if based on your investment choices, the individual corpus at the time of superannuation is less than the benchmark corpus, the subscriber has two options: One, contribute additional funds to cover the difference to be eligible for the full 50% assured payout. Else, the payout will be reduced proportionately. So, if the individual corpus on superannuation is only 75% of the benchmark corpus, the retiree will receive only 75% of the 50% assured payout. This makes the choice of aggressive investment pattern risky. 'The employee bears the risk of shortfall arising from market conditions, investment choices or breaks in service,' observes Kulin Patel, CEO, KA Pandit Consultants and Actuaries. On the other hand, if the individual's corpus on superannuation exceeds the benchmark corpus, the surplus amount is returned to the subscriber as a lump sum payout, even as he gets the full 50% assured even as UPS guarantees minimum pension after 10 years of service, the benefits get reduced proportionately when service years are lesser than 25. For instance, an employee retiring after 25 years of service with last drawn annual basic pay of Rs.30 lakh would fetch the full Rs.15 lakh as guaranteed pension payout in the first year. But another employee retiring after 15 years of service at same pay will only earn Rs.9 lakh annual pension (50% x `30 lakh x 15/25). Besides, employees who are removed, dismissed, or who resign are not entitled to the assured says that individuals who are not wedded to their government job may lose out if enrolling with UPS. 'UPS does not provide a sweet deal if you put in lesser number of years in a government job. If you shift jobs midway, the pension amount will not be meaningful.' Sumit Shukla, CEO, Axis Pension Fund, says, 'If you want flexibility to shift career paths and move to a higher paying non government job, or seek early retirement, the UPS is a bad choice.' Additionally, payout benefits under UPS are capped at 25 years. Employees with qualifying service period of more than 25 years will not receive any additional payout for the years exceeding 25. Effectively, any service beyond 25 years is ignored.'If you want flexibility to shift career paths, or seek early retirement, UPS is a bad choice.'CEO, AXIS PENSION FUNDA 25-year-old retiring on NPS must earn 12.26% annualised return by age 60 to be able to match payouts from UPS if he lives until returns from equity plans have propped up overall returns, but longer term outcomes have been modest.'People who are relying entirely on NPS for their retirement corpus and are likely to run a withdrawal rate higher than 4% should consider opting for the UPS.'FOUNDER AND PARTNER, BASUNIVESH FEE-ONLY FINANCIAL PLANNERSVoluntary retirement under the UPS is also very restrictive. An employee can opt for voluntary retirement only after completing 25 years of service. Further, the retiree can only receive the pay-out upon reaching the superannuation age. For example, an employee who joins service at 25 and voluntarily retires at 49 will have to wait for another 11 years to receive the your next of kin won't get full benefits in the UPS after your death, unlike in the NPS. 'In case of early demise of the subscriber, pension payout to spouse under the UPS falls to 60% of the guaranteed sum. If the spouse also dies, the pension stops altogether. Nothing flows to the children,' avers Raghaw. Effectively, an early death under UPS stops benefits of lifelong savings from flowing to loved ones. The UPS loses its allure when the individual's lifespan is shorter. Besides, unlike the OPS, the family pay-out under UPS cannot be claimed if the surviving spouse remarries after the death of the the other hand, when a NPS subscriber dies before retirement, the entire accumulated corpus is paid to the nominee as a lump sum, if amount is less than or equal to Rs.5 lakh. If corpus is more than Rs.5 lakh, 80% of the corpus flows towards purchase of annuity and the rest is paid as lump sum to the nominee or legal heirs. If none of the dependent family members (spouse, mother or father) are alive, the 80% corpus has to be returned to the surviving children or legal heirs. After retirement, the default annuity scheme of NPS provides annuity for life with the option of return of purchase price. If the subscriber dies after opting for a joint life annuity, payout continues to the spouse until death. After the death of the spouse, the purchase price is returned to the surviving children of the subscriber, or legal NPS offers several benefits and features that are missing in the UPS. Experts argue that the NPS allows a greater degree of choice, control and flexibility in investments and withdrawals. Even as UPS subscribers are restricted to three pension fund managers — UTI, SBI and LIC, NPS subscribers can choose from ten. To be sure, both UPS and NPS offer investment plans that allow government subscribers to park up to 50% in equities until a certain age. However, NPS lets subscribers continue to invest for longer and defer withdrawals. 'NPS lets you extend the accumulation phase up to age 75, allowing you to grow and compound the money for longer,' asserts Raghaw. Subscribers can exit from the NPS and initiate pension anytime during this can defer both lump sum withdrawal (for 10 years) and annuity payout (for 3 years). The NPS also permits subscribers to initiate an SWP (systematic withdrawal plan) from the accumulated corpus on retirement, instead of taking the lump sum payout. This lets you plan your regular income flow as per your requirement. NPS also allows more choices in annuities. 'NPS annuity plans come in multiple variants. Subscribers may opt for annuity without return of purchase or with return of purchase price. There is no such flexibility in UPS,' points out both UPS and NPS, employees are allowed to withdraw up to 60% of the total corpus as a lump sum on superannuation. However, this leads to a proportionate reduction in the assured monthly pension payout. Further, the 60% lump sum withdrawal is fully tax exempt under NPS. It is not yet clear if this tax exemption will be offered to UPS subscribers. Also, employer contributions under NPS are deductible from taxable income (even for those opting for new tax regime). But no such tax benefit is offered on UPS early withdrawals are allowed under both NPS and UPS. Partial withdrawals up to 25% of self-contribution (excluding returns) are allowed under UPS after completion of lock-in period of three years from the date of enrolment under UPS or NPS, whichever is earlier, for specified purposes. A maximum of three such withdrawals are allowed until superannuation. However, early withdrawals under NPS are tax exempt. UPS subscribers await clarity on who seek predictability in cash flows and are not likely to move jobs will find retiring with UPS' guaranteed, rising pension more stress-free. Having assurance of an inflation-adjusted pension payout at 50% of your last drawn basic pay for the rest of your life is a mighty comfort that a market-linked vehicle like NPS simply cannot match. 'UPS is a safety-first approach built on certainty whereas NPS is built on a probabilistic approach with multiple unknowns,' insists Saraogi. Even so, the choice is not straightforward. Despite its appeal of assured pension, UPS has its shortcomings. Those planning a shorter stint or retiring early should stay away from the UPS. NPS offers an edge over UPS in flexibility and control. Tonagatti adds that the 60% lump sum payout in NPS, if deployed correctly, can be used to compensate for the low-yield annuity payouts. Additional investments beyond NPS will further provide for a higher retirement kitty. Make sure to evaluate your current savings, assess your post-retirement needs and risk tolerance to make the right choice.'In case of early demise of the subscriber, pension payout to spouse under the UPS falls to 60% of the guaranteed sum. If the spouse also dies, the pension stops altogether.'FOUNDER, payout can reduce under three conditions
Indian Express
20 hours ago
- Indian Express
‘My manager had to do interventions': Nora Fatehi reveals how her unchecked shopping sprees impacted her bank account
Like any other girl, Nora Fatehi too is a fan of handbags and designer accessories. In a recent conversation with Instant Bollywood, the Royals actor opened up about her shopping sprees and the impact that has on her bank account. When asked what was her first luxury purchase, Fatehi revealed it to be a bag. 'It was a luxury bag. I love my bags. My handbags have broken my account. My Moroccan manager has had to like do interventions on me, sit me down and say — 'Look at your statement, it says LV, Dior, enough. You need to invest in your future. So I had to change the way I was spending.' Sharing deeper insight into her mindset back then, she added: 'It's like a complex, when you are younger you see people with all these things that you can't get. And then you're like, one day, I'll get everything.' Counselling psychologist Priyamvada Tendulkar calls Fatehi's behaviour a prime example of 'scarcity mindset' – a concept that began from the popular economy mindset aka the fixed vs growth mindset. The economy mindset starts off on the premise that things in the world are 'zero sum' and thus, for you to win, others have to lose, or if others win, you lose. 'While this is not necessarily wrong — this is how schools often make us think too — it sets us up to compete in a very zero-sum way. Despite attempts to balance it out with collaborative events and team work through sports, projects, class, houses, etc,' she explains. However, when this becomes your core mindset, Tendulkar says that the world is ruled by the fear of losing. One is caught up in some competitive race-format — they do not try to become better and are constantly trying to be risk averse. Once you tackle your scarcity mindset, next comes building a robust financial discipline, which includes an essential foundation of understanding financial instruments. Mukesh Pandey, Director of Rupyaa Paisa, told that in this day and age, it is no longer a matter of choice — having even a basic understanding of key financial instruments like Fixed Deposits, Mutual Funds, Public Provident Fund (PPF), Health & Life Insurance, National Pension Scheme (NPS), Share Investment Plans (SIP) will allow you to keep some control of your financial journey and decisions. According to Panday, India is still far behind in financial literacy. 'A SEBI survey found that only 27% of Indians are financially literate. This suggests that almost three-fourths of our population may be investing without fully understanding where their money is going and what risk issues a particular instrument is associated with,' he shared. Today, digital accessibility has already made financial products a click away, but with that ease of access comes responsibility. 'Understanding how to benefit from compounding through SIPs, tax-saving opportunities through ELSS or PPF, or even knowing the difference between term insurance and an investment-linked policy can change your financial journey,' stressed Pandey. Instead of just letting someone else manage your money, he believes it is crucial to create awareness around your money; ultimately, awareness is the biggest asset you could have. 'Consider that simply making a habit of 15 minutes a week to inform yourself about a financial concept will change the game of financial understanding and ultimately planning,' she said, adding that 'financial awareness is not about knowing all – it is about knowing enough and protecting your future'. DISCLAIMER: This article is based on information from the public domain and/or the experts we spoke to. Always consult your health practitioner/an expert before starting any routine.
NDTV
3 days ago
- NDTV
8th Pay Commission: Estimated Revised Salaries And Allowances For Government Employees
Quick Read Summary is AI generated, newsroom reviewed. The Indian government has approved the 8th Pay Commission for central government employees. Implementation of the revised salaries and pensions will begin on January 1, 2026. The proposed fitment factor may increase from 2.57 to 2.86, affecting salary scales significantly. 8th Pay Commission: The Indian government has approved the 8th Pay Commission, set to revise salaries and pensions for over 1 crore central government employees and pensioners. Implementation is expected from January 1, 2026. A key focus is the "fitment factor", a multiplier used to adjust pay scales. While the 7th Pay Commission used a factor of 2.57, the 8th may propose an increase to 2.86, potentially raising the minimum basic salary from Rs 18,000 to Rs 51,480 and pensions from Rs 9,000 to Rs 25,740. Final recommendations will be made by the appointed commission members. Understanding the 8th Pay Commission's Impact on Salaries and Allowances (Estimated) The 8th Pay Commission is set to bring significant changes to the salary structure of government employees. Here's what you need to know: Revised Allowances and Basic Pay Adjustments (Estimated) Along with basic salary adjustments, other allowances like House Rent Allowance (HRA) and Travel Allowance (TA) will also be revised based on location and job-related travel. This means two employees on the same pay level may receive different gross earnings due to varying allowances. Impact on NPS and CGHS Contributions (Estimated) National Pension System (NPS) Contributions: Government employees contribute 10% of their basic pay and dearness allowance (DA) to NPS, while the government contributes 14%. These contributions will increase following salary revisions. Central Government Health Scheme (CGHS): Charges under CGHS will be updated based on revised salary levels. Projected Salary Revisions (Estimated) Using a fitment factor of 2.28, projected salaries for various grades have been calculated. Here are some examples¹: Grade 2000 (Level 3): Basic pay revised to Rs 57,456, with HRA and TA bringing gross salary to Rs 74,845. Net salary after deductions: Rs 68,849. Grade 4200 (Level 6): Basic pay revised to Rs 93,708, with gross salary reaching Rs 1,19,798. Net salary after deductions: approximately Rs 1,09,977. Grade 5400 (Level 9): Revised basic salary of Rs 1,40,220, with total gross earnings of Rs 1,81,073. Net take-home pay: around Rs 1,66,401. Grade 6600 (Level 11): Revised salary of Rs 1,84,452, with gross income reaching Rs 2,35,920. Net salary after deductions: Rs 2,16,825.
