National Pension Scheme (NPS)

The National Pension Scheme (NPS) in India is a government-sponsored pension scheme aimed at providing retirement income to all citizens. It was launched in 2004 by the Pension Fund Regulatory and Development Authority (PFRDA), which regulates and administers the scheme. The NPS is open to employees from the public, private, and unorganized sectors.

Here are some key features of the National Pension Scheme:

  1. Voluntary Contribution: Participation in the NPS is voluntary for all Indian citizens, including Non-Resident Indians (NRIs).
  2. Tiered Structure: The NPS has two tiers: Tier-I and Tier-II. Tier-I is a mandatory, long-term retirement savings account, while Tier-II is a voluntary savings facility with more liquidity.
  3. Investment Options: NPS offers multiple investment options, including equities, corporate bonds, government securities, and alternative investment funds. Subscribers can choose between Active Choice and Auto Choice. In Active Choice, subscribers can decide the asset allocation, whereas in Auto Choice, the asset allocation is based on the age of the subscriber.
  4. Tax Benefits: Contributions to NPS are eligible for tax benefits under Section 80CCD(1), 80CCD(1B), and 80CCD(2) of the Income Tax Act, 1961. Additionally, the employer’s contribution to the employee’s NPS account (up to 10% of salary) is deductible under Section 80CCD(2).
  5. Portability: NPS accounts are portable across jobs and locations, allowing subscribers to continue with the same account irrespective of job changes or relocations.
  6. Withdrawal: At the age of 60, subscribers can withdraw a portion of their accumulated corpus as a lump sum, while the remaining must be utilized to purchase an annuity that provides a regular pension. Partial withdrawals are also allowed for specific purposes like higher education, medical treatment, or purchasing a house.
  7. Annuity Options: Subscribers have the flexibility to choose from various annuity options provided by empanelled Annuity Service Providers (ASPs) upon retirement.
  8. Regulated by PFRDA: The Pension Fund Regulatory and Development Authority (PFRDA) regulates and supervises the NPS, ensuring transparency, efficiency, and accountability in its operations.

The NPS aims to provide financial security to individuals during their retirement years and encourage long-term savings habits among the population. It offers flexibility, tax benefits, and a range of investment options to suit the diverse needs of subscribers.