National Pension Scheme
Retirement planning is about ensuring you have sufficient savings to maintain a stable income after retirement. One important option in India is the National Pension System (NPS). It is a government-regulated pension scheme that helps individuals build a retirement corpus for long-term financial security. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It provides tax benefits, flexible investment choices, and long-term market-linked growth, making it a structured retirement planning tool.
What is NPS?
The National Pension System (NPS) is a voluntary, defined-contribution retirement scheme introduced by the Government of India. Contributions are invested in market-linked instruments such as equity, corporate bonds, government securities, and alternative assets, managed by approved fund managers. At retirement, subscribers can withdraw up to 60% of the corpus, while at least 40% must be used to purchase an annuity for regular pension income.
Key Features of NPS
- Multiple Investment Options
- Active Choice: Allows subscribers to allocate funds across asset classes such as equities, corporate bonds, government securities, and approved alternative investment options.
- Auto Choice: A life-cycle based option where your investment mix changes automatically as you get older, with less money in stocks and more in safer assets as you near retirement.
- Two Types of Accounts
- Tier I Account: This is the primary retirement account with restrictions on withdrawal before retirement. It offers tax benefits and long-term investment growth.
- Tier II Account: This is a voluntary savings account that allows flexible withdrawals. It generally does not provide tax benefits, except for certain government employees under specific notified conditions.
- Tax Benefits
- Contributions up to ₹1.5 lakh per year are eligible under Section 80CCD(1) (within the 80C limit). Employer contributions are eligible under Section 80CCD(2), up to 10% of salary for private-sector employees and 14% for central government employees.
- An additional deduction of ₹50,000 per year is available under Section 80CCD(1B), which is still exclusive to NPS and is available over and above the ₹1.5 lakh limit of Section 80C.
- When you retire, you can take out as much as 60% of your total savings, and this amount is not taxed. The remaining 40% must be used to purchase an annuity, and the pension income received from it is taxable as per the individual’s income slab.
- Flexible Contribution
- Minimum yearly contribution for a Tier I account is ₹1,000, while there is no mandatory contribution for the Tier II account.
- Subscribers can decide their own contribution amount and frequency.
- Market-Linked Growth: Unlike traditional pension schemes, NPS investments are linked to the market, allowing the possibility of higher returns over the long term.
- Portability: NPS is portable across jobs and locations, making it an ideal choice for working professionals who change employers frequently.
- Annuity Options at Retirement
- Upon reaching 60 years of age, subscribers must use at least 40% of the corpus to purchase an annuity to ensure regular pension income and long-term financial stability after retirement.
- The remaining up to 60% can be withdrawn as a lump sum, which is currently tax-exempt under prevailing NPS rules.
Eligibility Criteria
- Indian citizens, including residents and NRIs, are eligible for NPS. Overseas Citizens of India (OCI) are not eligible under current PFRDA regulations.
- Individuals aged 18 to 70 years can join NPS. Entry is allowed up to 70 years as per PFRDA guidelines.
- KYC compliance is mandatory at the time of registration.
How to Open an NPS Account
- Choose a Point of Presence (PoP) – Banks and financial institutions authorized to handle NPS registrations.
- Fill out the Registration Form – Provide personal details, nominee information, and investment preference.
- Submit KYC Documents – Identity and address proof are required for verification.
- Receive Permanent Retirement Account Number (PRAN) – This unique number will be used for all future NPS transactions.
- Start Investing – Make an initial contribution and set up regular payments as per your financial goals.
Types of NPS Accounts
| Feature | Tier-I Account | Tier-II Account |
|---|---|---|
| Account Type | Mandatory | Voluntary |
| Withdrawals | Restricted until retirement | Allowed anytime |
| Tax Benefits | Up to ₹2 lakh per year | ₹1.5 lakh (for government employees only) |
| Minimum Contribution | ₹500 per deposit or ₹1,000 per year | ₹250 per deposit |
| Maximum Contribution | No limit | No limit |
Recent Updates on NPS
As of 2025–26, the Government of India has introduced the Unified Pension Scheme (UPS) only for central government employees as an alternative pension option. It does not replace the National Pension System (NPS), which continues to operate for private-sector employees, self-employed individuals, and all eligible citizens as a market-linked retirement scheme.
NPS Eligibility Criteria
Government Sector NPS
- Available to state and central government employees (excluding armed forces personnel).
- Contribution: 10% of salary by employees and 14% by central government for eligible employees (for those under UPS/NPS legacy structures). State government contribution structures may vary but generally follow NPS guidelines.
- Implemented in all Indian states except West Bengal.
Corporate NPS Model
- Employees of registered organizations can join.
- Eligibility:
- Indian citizens aged 18–70 (as per current NPS entry age limit).
- Completion of KYC (Know Your Customer) formalities.
All Citizens Model
Open to any Indian citizen between 18–70 years.
Requires KYC verification and registration through authorized PoP service providers.
Documents Required for NPS Withdrawal
- Completed withdrawal request form
- Original PRAN (Permanent Retirement Account Number) card
- Attested identity proof
- A canceled cheque for bank verification
Objectives of the National Pension System
The National Pension System (NPS) was started by the Government of India with the purpose of:
- Facilitate structured retirement savings for individuals.
- Encourage financial discipline by promoting long-term investments.
- Provide post-retirement financial security, ensuring a steady income.
- Support India's growing senior citizen population with a stable pension framework.
Is NPS Mandatory?
- For central government employees: NPS is compulsory, with a mandatory 10% salary contribution.
- For private sector employees and individuals: NPS is a voluntary investment scheme.
Key Benefits of NPS
- Market-Linked Growth – Investments in equities, corporate bonds, and government securities and alternative investment funds (AIFs) generate competitive returns.
- Tax Savings – Contributions qualify for deductions up to ₹2 lakh per year under Sections 80CCD(1), 80CCD(2), and 80CCD(1B).
- Flexibility – Subscribers can customize investment preferences and modify contributions.
- Portability – NPS accounts remain valid across job changes and geographic locations.
- Retirement Security – Upon reaching 60 years, up to 60% of the corpus can be withdrawn tax-free, while 40% is allocated for annuity purchase to ensure lifetime pension benefits.
KYC Document Requirements for NPS Enrollment
To enroll in NPS, the following documents are required:
- Subscriber Registration Form
- Photo Identification Proof (Aadhaar, PAN, Passport, Voter ID)
- Proof of Date of Birth
- Proof of Residence
NPS Customer Care Contact Information
- NPS SMS Service: Send ‘NPS’ to 56677
- Toll-Free Number for Registered Subscribers: 1800 222 080
- NPS Call Centre Helpline: 1800 110 708
NPS Ombudsman Contact:
Shri Narender Kumar Bhola
Pension Fund Regulatory and Development Authority (PFRDA)
B-14/A, Shivaji Building, Qutab Area, New Delhi, 110016, India
Email: ombudsman@pfrda.org.in
Landline: 011 - 26517507 Ext: 188
What are the features of the NPS app?
The NPS app allows users to request transaction statements, check scheme-wise units, and update contact details.
Can NRIs open an NPS account?
Yes, NRIs aged between 18 and 60 years can join NPS if they meet KYC requirements.
What are the mandatory minimum contribution amounts for Tier I and Tier II accounts?
Tier I: Minimum ₹500 per month, ₹6000 annually.
Tier II: Minimum ₹250 per month, ₹2000 annually.
How is the withdrawal amount allocated to the nominee upon claim?
The funds are electronically transferred to the nominee’s registered bank account upon approval.
Am I permitted to make partial withdrawals from my NPS account?
Yes, partial withdrawals are allowed under specific conditions.
Who provides annuities under NPS?
Annuities are offered by insurance companies that are licensed by the IRDAI and authorized by the PFRDA.
How can I verify the status of my NPS account through SBI?
Access the SBI Life customer portal by entering your Customer ID and NPS policy number.
Is NPS an accessible long-term investment?
The NPS offers a cost-effective, flexible, and portable retirement savings option.
What happens if the subscriber retires early?
At least 80% of the accumulated pension corpus must be utilized for purchasing an annuity, with the remaining 20% eligible for withdrawal as a one-time lump sum.
Is it possible to switch from the Active Choice option to the Auto Choice option in the NPS scheme?
You are permitted to modify asset allocations up to two times within a financial year and are allowed one switch of fund managers during the same period.
What documents are required for NPS enrollment?
To enroll in NPS, you need to submit a subscriber registration form along with valid documents such as a photo ID proof, proof of date of birth, and residential proof.
What is the customer care number for NPS?
The customer care number for NPS can be reached in multiple ways. You can simply SMS ‘NPS’ to 56677 for quick assistance, or if you are a registered PRAN holder, you can call the toll-free number 1800 222 080. Additionally, you can also connect through the NPS call centre at 1800 110 708 for support.