All you want to know about National Pension Scheme

National Pension Scheme

We all work hard and even make sacrifices in order to save. But why do we save? To make our future secure. As we all know, a secure future, especially financial security, is important at all stages of life, and more so once we stop working. In fact, the availability of finance after retirement is the most important constituent for making our future worry-free. The major benefit of Government Jobs in India is lucrative pension plans. Pension plans are tools that aid you to invest regularly during your work life span and repay your investment once you seek retirement. Such plans should be in place to meet the contingencies of the future. It is here that the National Pension Scheme becomes important. 

National Pension System (NPS) is a pension/investment scheme aimed at providing security to all the citizens of India. It is, in fact, voluntary and allows subscribers to make planned contributions towards their savings thus securing their financial security in the form of pension. It is a long term saving avenue launched by the Government of India in 2004 as a sustainable solution to providing adequate retirement income to every Indian. The scheme is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA) set up under the PFRDA Act, as of 2013.

How does it work?

NPS is market linked.

As and when an account is opened, a Permanent Retirement Account Number (PRAN) is generated and maintained by the Central Recordkeeping Agency (CRA).

Types of accounts.

There are two types of accounts, Tier-I and Tier-II. Tier-I is the pension account having restricted withdrawals. Tier-II is a voluntary account and offers liquidity of investments and withdrawals. The contributions accumulate over a period of time till retirement, and grow with market linked returns.

Life pension.

On exit/retirement/superannuation, a minimum of 40% of the corpus is used up to procure a life pension by purchasing an annuity from a life insurance company. The balance corpus is paid as lumpsum.

Different models.

The NPS platform offers different models to suit different segments of users. 

The Government model.

This is for government employees, except the Armed Forces, where NPS is mandatory for employees recruited on or after January 1, 2004. Subsequently, all State Governments, excluding West Bengal, adopted NPS for their employees. A monthly contribution of 10% of their salary is made and a matching contribution is made by the government. For central government employees, however, the employer’s contribution rate was increased to 14% as of April 1, 2019.

The Corporate Model.

Companies adopt NPS for their employees with contribution rates decided by employment conditions.

All Citizens Model.

This allows all citizens of India aged between 18 – 65 years to join NPS. This is done on a voluntary basis.

Advantages of NPS

Voluntary: It is a voluntary scheme for all Indians where you can invest any amount in your NPS account at any time.

Tax Benefits: NPS offers triple tax benefits 

Flexible: It is up to you to select or change the Point of Presence, investment pattern and fund manager. This means you can optimize returns as per your comfort with various assets, be it Equity, Corporate Bonds, Government Securities and Alternate Assets.

Regulated: NPS is regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India) which ensures transparent norms governing the activities. The NPS Trust ensures adherence to the guidelines through regular monitoring.

Economical: NPS is one of the lowest cost investment products available.

Portability: NPS account or PRAN will remain same irrespective of change in employment, city or state.

Fund transfer: Account holders can transfer their superannuation funds to their NPS account without any tax implication. 


Withdrawal limits: All withdrawals are restricted till the subscriber reaches 60 years. The first withdrawal can be made after 10 years of opening the account and a maximum of three withdrawals can be made before you turn 60.
Less benefits: The government initiated the scheme to end all defined pension related benefits to its employees.
Taxation at withdrawal: The NPS corpus is taxable when the scheme matures.
Investment restrictions: A person cannot invest more than 50% of his investment in the NPS account.
Restrictions on account opening: A person can have only a single account throughout his lifetime. While PRAN can be easily changed across jobs and locations, only one account is possible. 

All said and done, it is extremely important to have financial security during retirement, and schemes such as these, if used prudently, work out efficiently and to your benefit.

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