National Pension System (NPS) - An Introduction


National Pension Scheme (NPS) is defined as voluntary contribution based pension system, introduced by Government of India through Pension Fund Regulatory and Development Authority (PFRDA). In 2004, it was designed for government employees but later in 2009 opened for all citizens of India. All citizens of India in 18-60 age groups who are in private jobs or self-employed can park their money in NPS which will take care of retirement years in the form of pensions. The scheme encourages individuals to invest in NPS at regular intervals during the course of their employment to help in creating retirement fund.

Salient Features of NPS :

1. Individual who invests in NPS receives a Permanent Retirement Account Number (PRAN) card which has 12-digit unique number. Employer can also contribute with the same PRAN in employee’s account.

2. Individual will getstabilized cash flows and financial security also after retirement to continue a comfortable life without affecting the standard of living.

3. Tax Benefits : When an individual is contributing in NPS is eligible for deduction in taxable income up to the limit of Rs.1.5 lakh under Section 80C of the Income Tax Act and addition deduction up to the limit of Rs.50, 000 under section 80CCD.

4. Investment Choice : It is actually a pension cum investment scheme which brings an attractive long term saving option for effectively planning your retirement through safe and regulated market returns.

a. This scheme has delivered 8% to 10% annualized returns over the decade.

b. Contribution made by an investor in NPS account shall be invested by Pension Fund Manager based on four asset  classes such as equity, debt,government bonds and alternative investment funds.

c. Individual can expect higher returns in NPSas compared to investing infixed income securities or government securities in isolation.

5. Transparency : NPS is a transparent scheme where contribution invested in a pension fund account can be checked by individual on a daily basis for growth.

6. Withdrawal Options

  • Upon Superannuation : When the investor reaches the age of 60, he or she can withdraw 60% of the corpus  as a lump sum amount which would be tax free and the remaining 40% of the accumulated corpus as regular monthly pension.If the total accumulated corpus is less than or equal to Rs.1 lakh, investor can opt for 100% lump sum withdrawal.

  • Pre-mature exit : In case, the investor wants to exit from the scheme before the retirement, then he or she is required to utilize at 80% of the accumulated corpus in form of an annuity which would provide regular monthly pension and the remaining funds can be withdrawn as lump sum but only after completion of 10 years. If the total accumulated corpus is less than or equal to Rs.1 lakh, investor can opt for 100% lump sum withdrawal.

  • Upon death of investor : The entire accumulated corpus would be paid to the nominee of the investor.
7. Partial Withdrawal : On completion of 3 years in NPS, individual can partially withdraw from the pension account only up to the limit of 25% of the contribution up to maximum of 3 withdrawals during the entire tenure for following purposes only:

a. For higher education for his/her children
b. For marriage of his/her children
c. For purchase or construction of residential house
d. For treatment of specified illness
e. Disability of more than 75%


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