If you switch to the Unified Pension Scheme (UPS) without first reviewing the value of your NPS holdings, you risk incurring a significant financial loss. It’s essential to assess your NPS contributions, current value, and notional gains/losses before making the switch to avoid any negative impact on your retirement savings.
You can download the calculation sheet (based on historical data and hypothetical scenarios) in Excel format by clicking the link below:
The cautious approach provided below ensures a more grounded estimate, while still reflecting the strong growth potential of the NPS over time. This conservative estimate offers a balanced view, considering historical returns while accounting for market fluctuations.
Projected Retirement Key Points:
- For the final five years of service, the projected contribution and holding values show substantial growth, with the holding investment potentially reaching ₹1.92 crore by FY 2041-42.
- The total gain/loss continues to increase each year, reflecting the significant returns possible with the NPS.
- If your retirement is approaching in the near future, it may be prudent to consider the Unified Pension Scheme (UPS) as it could potentially offer benefits more aligned with your immediate needs.
- However, if retirement is still some years away, it’s essential to carefully assess your NPS contribution returns. Given its market-linked nature and the substantial growth potential demonstrated by historical data, the NPS might still be a more suitable and profitable scheme compared to the UPS.
- Evaluate your specific financial goals and timelines, and consider using NPS calculation sheets or consulting with a financial advisor or countLen team to make an informed decision based on your individual circumstances and retirement plans.
To understand the rationale behind the government’s introduction of the Unified Pension Scheme (UPS) as a replacement for the National Pension System (NPS), it is essential to analyze the contributions and returns of a typical government employee under NPS.
The message (above image) received from the NSDL (Protean) on September 9, 2024, shows the employee’s monthly contribution for August 2024 amounting to ₹20,448.00, which was credited to the PRAN account XX6891. On the other side of the message, the investment value in the Tier-I account (PRAN XX6891) as of June 30, 2024, was reflected as ₹25,23,690.44.
Upon checking the NPS account on the NSDL official website on September 13, 2024, the employee found that they had contributed a total of ₹7,64,175, while the government’s contribution amounted to ₹9,27,105.80, resulting in a total contribution of ₹16,91,280.80.
The investment/holdings value of the employee’s contribution had grown to ₹26,56,521.64, with a notional gain/loss of ₹9,65,240.84. As of that date, the employee had made 239 contributions to the account, and the XIRR (Extended Internal Rate of Return) stood at 9.40%.
It’s important to note that this total value of the holdings has been accumulated over approximately 18 and a half years of service, which is roughly half of the employee’s 38-year career. With the remaining service time being nearly the same, the employee can expect the investment value to grow significantly, especially as monthly contributions and returns continue to compound over time.
The employee’s monthly contribution has risen dramatically from ₹584 to ₹20,448, reflecting a 30-fold increase. Similarly, the annual contribution has surged from ₹15,686 to ₹2.45 lakh, over 15 times higher than in the first year. This trend is anticipated to continue growing at a high rate, driven by the market-linked returns offered by the NPS, making it a highly attractive long-term option for retirement planning.
Upon analyzing the remaining service period until retirement, it is evident that the employee’s contributions and returns will continue to increase significantly. By projecting the future value of these contributions, the investment could grow considerably over time. as below:
However, from a fiscal planning perspective, the government may find the current NPS unsustainable due to the large, unpredictable payouts as employees near retirement. This concern likely prompted the introduction of the UPS (Unified Pension Scheme), which is designed to provide more predictable pension outcomes while reducing the fiscal strain on the government.
Switching to UPS? Review Your NPS First to Prevent Big Losses.
Here we provide the contribution chart year-wise of the said government employee and try to understand the value of the investment or holding at the end of the service or retirement. In the below chart provide the data for the first five year of contribution.
Here the said employee confirmed that he is appointed on the month March, 2005. The government announced the National Pension System (NPS) from January 1, 2005, but due to administrative challenges, contributions for employees were not managed or started between 2005 to 2012.
As a result, contributions only began from April 2012. To address the seven-year gap, the government initiated a month wise recovery plan, deducting an additional installment alongside the regular 10% contribution starting from April 2012 to cover the missing contributions from 2005 to 2012.
| Financial Year | No. of contribution | Total Contribution (Rs) in FY | Percentage Gain/Loss | Total Gain/Loss | Value of your Holding Investment |
|---|---|---|---|---|---|
| 2012-13 | 6 | 27,254 | 11.00% | 1,106 | 28,360 |
| 2013-14 | 20 | 96,960 | 6.82% | 4,957 | 1,01,917 |
| 2014-15 | 32 | 1,68,142 | 6.82% | 30,005 | 1,98,147 |
| 2015-16 | 55 | 2,60,028 | 10.41% | 46,088 | 3,06,116 |
| 2016-17 | 78 | 3,64,242 | 11.43% | 91,989 | 4,56,231 |
The above table illustrates the results for the first five financial years, from FY 2012-13 to FY 2016-17. The initial year shows a return percentage of 11.00%, followed by a lower rate in the next two years. The final year of the period, however, demonstrates a recovery with the highest return rate of 11.43%. Over these five financial years, the total contribution made by the employee and the government amounted to ₹3,64,242, with a total gain of ₹91,989 during this period.
| Financial Year | No. of contribution | Total Contribution (Rs) in FY | Percentage Gain/Loss | Total Gain/Loss | Value of your Holding Investment |
|---|---|---|---|---|---|
| 2017-18 | 100 | 4,78,138 | 9.42% | 1,20,619 | 5,98,757 |
| 2018-19 | 125 | 6,06,220 | 9.34% | 1,80,855 | 7,87,075 |
| 2019-20 | 150 | 7,50,000 | 8.75% | 2,41,917 | 9,91,917 |
| 2020-21 | 173 | 9,18,215 | 9.98% | 3,92,868 | 13,11,083 |
| 2021-22 | 196 | 11,47,025 | 9.27% | 4,87,506 | 16,34,531 |
The above table shows the results for the next five financial years from FY 2017-18 to FY 2021-22. In the sixth year (FY 2017-18), the return percentage was 9.42%. The next two years experienced lower rates, while the final year in the period saw a slight increase in the return rate to 9.27%, though it was lower than the rate in FY 2017-18. Over these five years, the total contribution from both the employee and the government amounted to ₹11,47,025, with a total gain of ₹4,87,506.
| Financial Year | No. of contribution | Total Contribution (Rs) in FY | Percentage Gain/Loss | Total Gain/Loss | Value of your Holding Investment |
|---|---|---|---|---|---|
| 2022-23 | 217 | 13,62,822 | 8.28% | 5,63,886 | 19,26,707 |
| 2023-24 | 232 | 15,75,236 | 9.03% | 8,17,539 | 23,92,775 |
| 2024-25 | 239 | 16,91,280 | 9.40% | 9,65,241 | 26,56,522 |
Historical Contributions and Investment Value (April 2005 – August 2024)
- The employee’s monthly contributions have increased substantially over the years, from ₹584 to ₹20,448, and the annual contributions have grown from ₹15,686 to ₹2.45 lakh.
- By August 2024, the total contribution is ₹26,56,521.64, with a notional gain of ₹9,65,240.84 and an XIRR of 9.40%.
Projected Contributions and Investment Value (FY 2037-38 to FY 2041-42)
Based on the previous minimum gain/loss percentage of 6.82%, the projected figures are:
| Financial Year | No. of contribution | Total Contribution (Rs) in FY | Percentage Gain/Loss | Total Gain/Loss | Value of your Holding Investment |
|---|---|---|---|---|---|
| 2037-38 | 402 | 77,34,054 | 6.82% | 50,17,316 | 1,27,51,371 |
| 2038-39 | 414 | 85,55,562 | 6.82% | 56,00,806 | 1,41,56,368 |
| 2039-40 | 426 | 94,56,335 | 6.82% | 62,45,728 | 1,57,02,063 |
| 2040-41 | 438 | 1,04,41,775 | 6.82% | 69,57,857 | 1,73,99,632 |
| 2041-42 | 450 | 1,15,27,067 | 6.82% | 77,44,003 | 1,92,71,070 |
Minimum expected last five years contribution chart for an employee provides an estimate of potential contributions and returns. Please note that these results may vary or differ based on market values and investment performance.
The table provided outlines the potential growth in the employee’s National Pension System (NPS) contributions during the final five financial years of service, from FY 2037-38 to FY 2041-42. Based on a hypothetical return rate of 6.82%, we observe significant increases in both total contributions and overall returns.
Key Highlights of the Last Five Years:
- FY 2037-38: Total contribution amounts to ₹77,34,054, with a gain of ₹50,17,316. The holding value reaches ₹1,27,51,371.
- FY 2038-39: Contributions grow to ₹85,55,562, gaining ₹56,00,806, bringing the total holding to ₹1,41,56,368.
- FY 2039-40: Contributions continue to rise, reaching ₹94,56,335, with a gain of ₹62,45,728, increasing the holding to ₹1,57,02,063.
- FY 2040-41: Contributions total ₹1,04,41,775, gaining ₹69,57,857, and holding reaches ₹1,73,99,632.
- FY 2041-42: By the final FY before retirement, contributions stand at ₹1,15,27,067, generating a gain of ₹77,44,003, bringing the final holding value to ₹1,92,71,070.
- FY 2042-43: By the retirement date (30.06.2042), contributions stand at ₹1,18,15,276, generating a gain of ₹85,49,805, bringing the final holding value to ₹2,03,65,081.
Projected Future Value:
- For the final five years of service, the projected contribution and holding values show substantial growth, with the holding investment potentially reaching ₹1.92 crore by FY 2041-42 ending and on the retirement day your investment value might be reached over ₹2.03 crore by FY 2041-42.
- The total gain/loss continues to increase each year, reflecting the significant returns possible with the NPS.
The notable point is that NPS has generated returns between 6.82% and 11.43% since its inception and here for the purpose of these calculations, we’ve conservatively taken the average percentage of gain/loss at a minimum rate of 6.82%.
Conclusion:
By the time of retirement in June 2042, the employee’s NPS contributions could amount to approximately ₹1.92 crore, driven by steady contributions and compounded returns. The consistent increase in both contributions and returns, as shown over the last five years, indicates how powerful market-linked growth can be under the NPS. From an initial value of ₹1.27 crore in FY 2037-38, the employee’s total holdings grow by more than ₹65 lakh over the next five years, reaching nearly ₹2.00 crore.
These calculations highlight the long-term growth potential of NPS as an attractive retirement savings option. However, it also reflects the government’s concern about fiscal sustainability, leading to the introduction of the new Unified Pension Scheme (UPS). The growing payouts under NPS might be challenging to manage in the future, prompting the shift to UPS to balance these large returns with fiscal prudence.
Here the below the the whole contributions (original data till August-2024) and after remaining service data calculated as based on the previous gain/loss and increase value of the contribution and investment till retirement.
| Financial Year | No. of contribution | Total Contribution (Rs) in FY | Percentage Gain/Loss | Total Gain/Loss | Holding Investment Value |
|---|---|---|---|---|---|
| 2012-13 | 6 | 27,254 | 11.00% | 1,106 | 28,360 |
| 2013-14 | 20 | 96,960 | 6.82% | 4,957 | 1,01,917 |
| 2014-15 | 32 | 1,68,142 | 6.82% | 30,005 | 1,98,147 |
| 2015-16 | 55 | 2,60,028 | 10.41% | 46,088 | 3,06,116 |
| 2016-17 | 78 | 3,64,242 | 11.43% | 91,989 | 4,56,231 |
| 2017-18 | 100 | 4,78,138 | 9.42% | 1,20,619 | 5,98,757 |
| 2018-19 | 125 | 6,06,220 | 9.34% | 1,80,855 | 7,87,075 |
| 2019-20 | 150 | 7,50,000 | 8.75% | 2,41,917 | 9,91,917 |
| 2020-21 | 173 | 9,18,215 | 9.98% | 3,92,868 | 13,11,083 |
| 2021-22 | 196 | 11,47,025 | 9.27% | 4,87,506 | 16,34,531 |
| 2022-23 | 217 | 13,62,822 | 8.28% | 5,63,886 | 19,26,707 |
| 2023-24 | 232 | 15,75,236 | 9.03% | 8,17,539 | 23,92,775 |
| 2024-25 | 239 | 16,91,280 | 9.40% | 9,65,241 | 26,56,522 |
| 2024-25 | 246 | 18,24,449 | 6.82% | 10,89,668 | 29,14,117 |
| 2025-26 | 258 | 20,69,342 | 6.82% | 12,30,797 | 33,00,139 |
| 2026-27 | 270 | 23,39,046 | 6.82% | 13,90,320 | 37,29,366 |
| 2027-28 | 282 | 26,34,781 | 6.82% | 15,70,012 | 42,04,793 |
| 2028-29 | 294 | 29,58,319 | 6.82% | 17,71,770 | 47,30,089 |
| 2029-30 | 306 | 33,14,623 | 6.82% | 19,97,827 | 53,12,450 |
| 2030-31 | 318 | 37,05,333 | 6.82% | 22,50,531 | 59,55,864 |
| 2031-32 | 330 | 41,32,773 | 6.82% | 25,32,386 | 66,65,158 |
| 2032-33 | 342 | 46,03,508 | 6.82% | 28,46,345 | 74,49,853 |
| 2033-34 | 354 | 51,19,672 | 6.82% | 31,95,507 | 83,15,179 |
| 2034-35 | 366 | 56,84,354 | 6.82% | 35,83,180 | 92,67,534 |
| 2035-36 | 378 | 63,06,229 | 6.82% | 40,13,264 | 1,03,19,494 |
| 2036-37 | 390 | 69,88,115 | 6.82% | 44,89,854 | 1,14,77,969 |
| 2037-38 | 402 | 77,34,054 | 6.82% | 50,17,316 | 1,27,51,371 |
| 2038-39 | 414 | 85,55,562 | 6.82% | 56,00,806 | 1,41,56,368 |
| 2039-40 | 426 | 94,56,335 | 6.82% | 62,45,728 | 1,57,02,063 |
| 2040-41 | 438 | 1,04,41,775 | 6.82% | 69,57,857 | 1,73,99,632 |
| 2041-42 | 450 | 1,15,27,067 | 6.82% | 77,44,003 | 1,92,71,070 |
An employee contribution data (above table) collected from the official website NSDL, which provide the details of the employee contribution/holding/gain/loss. The data is based on an actual data from FY 2012-13 to 2024-25 (till August-2024 or 239 contribution) and data from FY 2024-25 ( from September-2024) to FY 2041-42 prepare as based on percentage gain/profit and increase contribution percentage as per annum. The average percentage of gain/loss is provided here as minimum basis as 6.82%. The actual calculation may vary or differ from the above table data. Excel Sheets, download here.
These projections and historical data underscore the robust growth potential of the NPS as a long-term retirement savings tool. However, future changes in pension policies, including the introduction of the Unified Pension Scheme (UPS), could impact the final outcomes.
The success of the UPS will depend on several key factors:
- Implementation Effectiveness: The ease of integrating UPS into current systems and its clear communication to employees will be crucial.
- Clarity on Details: Await further notifications for specifics on contribution rates, pension calculations, and eligibility.
- Tax Implications: Understanding how UPS affects tax liabilities will be essential for evaluating its financial benefits.
- Benefits Structure: Comparing the benefits of UPS with the current NPS will help in assessing its attractiveness.
While the UPS seeks to address sustainability concerns and potentially offer more stable benefits, its true impact will only be clear once additional details are provided and its real-world effects are observed.
For a detailed estimation of expected growth until retirement, using NPS calculators available on the CRA portal or Excel sheets created by the CountLen Team. If you need help interpreting these figures, feel free to provide details or leave a comment below. The CountLen Team will offer solutions using their expertise to ensure you’re fully satisfied.
Some Fact, About NPS:
The Central Government introduced the National Pension System (NPS) effective from January 1, 2004 (excluding armed forces personnel). Each subscriber is assigned a unique 16-digit Permanent Pension Account Number (PPAN) by the concerned Pay and Accounts Office (PAO).
The PPAN is structured as follows: the first four digits indicate the calendar year of joining government service; the next digit identifies whether the individual belongs to a civil or non-civil ministry; the next six digits represent the PAO code used for monthly account compilation; and the final five digits are a serial number unique to each government servant, assigned by the PAO. A register is maintained to ensure that PPANs are issued sequentially without duplication.
Both the individual’s contribution and the government’s matching contribution are recorded under distinct accounting codes: 00/016/02 – Individual Contribution and 00/016/03 – Government Matching Contribution.
The government servant’s contribution amounts to 10% of their basic pay, dearness pay (DP), dearness allowance (DA), and non-practicing allowance (NPA), deducted from their salary each month. Any changes in basic pay, DA, or DP due to arrears or revisions will result in a corresponding adjustment of 10% of the paid emoluments.
Contributions to NPS are eligible for tax exemptions under Section 80C, Section 80CCC, and Section 80CCD(1) of the Income Tax Act. Since 2016, an additional tax benefit of ₹50,000 has also been available. In 2019, the government increased its contribution share for central government NPS subscribers from 10% to 14%, effective from April 1, 2019.
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