Understanding NPS and UPS Provisions Through Case Studies – Death and Disablement in Service

The National Pension System (NPS) and the Unified Pension Scheme (UPS) provide distinct benefits for Central Government employees in India, especially in cases of unforeseen events like death or disablement during service. To help employees and their families understand these provisions, we will analyze two real-world case studies based on the latest Office Memoranda (OMs):

• DoPPW OM dated October 26, 2022 (CCS NPS Rules, 2021) for NPS

• Finance Ministry Notification dated January 24, 2025 (UPS effective from April 1, 2025)

These case studies will clarify benefits, eligibility criteria, and potential financial outcomes under both schemes.

Case Study 1: NPS – Death of an Employee in Service

Employee Profile

• Name: Rajesh Kumar

• Age: 42

• Service Duration: 15 years (Joined on January 1, 2010)

• Basic Pay: ₹80,000/month (including Dearness Allowance)

• NPS Contribution: 10% (₹8,000/month) by Rajesh, 14% (₹11,200/month) by the government

• Accumulated Corpus: ₹45 lakh (by April 2025)

• Family: Wife (Meena, 38) and two minor children

• Event: Rajesh dies in a road accident on April 15, 2025.

Provisions Applied (NPS)

• Under the CCS NPS Rules, 2021 (Rule 10), since Rajesh did not opt for CCS (Pension) Rules, the NPS provision applies.

• Corpus Disbursement: The entire ₹45 lakh is paid as a lump sum to his nominee (Meena).

• No Mandatory Annuity Purchase: The amount can be fully withdrawn without buying an annuity, as per PFRDA (Exits and Withdrawals) Regulations, 2015.

• Tax-Free Benefit: The ₹45 lakh is tax-free under Section 10(10D) of the Income Tax Act, 1961.

• Additional Benefits: A death gratuity of ₹9.6 lakh (12 times last pay) under CCS Rules.

• No Family Pension: Meena must invest the corpus for regular income, as NPS doesn’t provide an automatic pension.

Family Outcome

• Meena receives ₹45 lakh (NPS corpus) + ₹9.6 lakh (gratuity) = ₹54.6 lakh.

• If she invests ₹20 lakh in an annuity (at 6%), she could get ₹10,000/month, leaving ₹34.6 lakh for other needs.

Alternative Scenario: If Rajesh Had Opted for CCS (Pension) Rules

• Meena would receive a family pension of ₹40,000/month (50% of ₹80,000) with dearness relief.

• However, she wouldn’t receive the ₹45 lakh lump sum.

Key Takeaway

NPS offers flexibility with a lump sum payout, making it ideal for families needing immediate funds. However, securing a steady income requires proactive financial planning.

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Case Study 2: UPS – Disablement of an Employee in Service

Employee Profile

• Name: Priya Sharma

• Age: 35

• Service Duration: 10 years (Joined on April 1, 2015)

• Basic Pay: ₹60,000/month (including Dearness Allowance)

• UPS Contribution: 10% (₹6,000/month) by Priya, 18.5% (₹11,100/month) by the government

• Option: Opted for UPS on April 1, 2025

• Family: Husband (Amit, 37) and one child

• Event: Priya suffers a spinal injury in June 2025, leading to permanent total disablement and discharge from service.

Provisions Applied (UPS)

• Under UPS provisions (Finance Ministry Notification, January 24, 2025), Priya qualifies for an invalid pension.

• Monthly Pension: ₹30,000/month (50% of last 12 months’ average basic pay).

• Inflation Adjustment: Dearness relief (5% annually), increasing the pension over time.

• No Lump Sum Payout: Unlike NPS, UPS doesn’t allow corpus withdrawal; benefits are pension-based.

• Additional Benefit: ₹6 lakh disability gratuity (10 times last pay) under CCS Rules.

• Post-Death Scenario: If Priya passes away later, her husband Amit will receive a family pension of ₹18,000/month (60% of Priya’s pension).

Family Outcome

• Priya gets ₹30,000/month (pension) + ₹6 lakh (gratuity).

• The pension provides lifelong financial security, ensuring Amit is also covered after Priya.

Alternative Scenario: If Priya Had Stayed in NPS

• She would receive a corpus of ₹25 lakh (assumed after 10 years of service).

• 40% annuity purchase: ₹10 lakh, yielding only ₹5,000/month (assuming 6% annuity rate).

• 60% lump sum: ₹15 lakh for immediate use.

• Less stable income compared to UPS’s guaranteed pension.

Key Takeaway

UPS provides lifelong financial stability with a guaranteed pension, ideal for long-term security.

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Resolving Common Doubts

What Happens if No Nominee Exists?

• NPS: The corpus goes to legal heirs per succession laws (e.g., Hindu Succession Act).

• UPS: No corpus exists; the family pension continues to the spouse until cessation.

Can the Family Switch Schemes After Death/Disablement?

• No, the scheme at the time of the event is final.

What if Service is Less than 10 Years?

• NPS: Full corpus paid (e.g., ₹20 lakh after 5 years), or CCS pension if opted.

• UPS: Proportionate pension or gratuity per CCS Rules.

Is UPS Always Better for Family Security?

• Not necessarily. UPS ensures a pension, but NPS’s lump sum allows financial flexibility.

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Comparison and Conclusion

Aspect	NPS (Rajesh’s Case – Death in Service)	UPS (Priya’s Case – Disablement in Service)
Event	Death in service	Disablement in service
Benefit	₹45 lakh lump sum + ₹9.6 lakh	₹30,000/month pension + ₹6 lakh
Family Security	Flexible, investment-dependent	Guaranteed ₹18,000/month family pension later
Flexibility	High (lump sum)	Low (pension-only)

NPS is ideal for those who prefer liquidity, as seen in Rajesh’s case—his family received ₹54.6 lakh but had no guaranteed pension. UPS offers lifelong financial security, evident in Priya’s case—she gets ₹30,000/month for life.

Ultimately, employees must weigh their priorities: immediate financial control (NPS) or lifelong stability (UPS). Understanding these provisions helps in making informed decisions for a secure future.