The National Pension Scheme (NPS) is a defined contribution pension scheme introduced by the Government of India on 1st January 2004. The NPS scheme is open to all Indian citizens between 18 and 60 years old. Under the scheme, subscribers must contribute a minimum of Rs. 1000 per annum. The Pension Fund Regulatory and Development Authority (PFRDA) administers the scheme. The scheme has two tiers – Tier I and Tier II. Tier I is a mandatory account where contributions are locked in till retirement. Tier II is a voluntary account where subscribers can withdraw their contributions anytime. 

The NPS scheme provides for two investment options – government securities and equity. Subscribers can choose to invest in either option or a combination of both. The NPS scheme also provides an annuity option, where subscribers can receive a regular income after retirement. The scheme has been designed to provide a sustainable and adequate income during retirement. NPS also aims to promote financial inclusion by providing social security to all citizens as similar to FD schemes with best senior citizen FD rates.

Features of National Pension Scheme

  • Voluntary participation: The NPS is a voluntary scheme, and any Indian citizen between 18 and 60 can join.
  • Affordable: With a very little contribution any individual in India can join the NPS, and even small contributions can be made monthly.
  • Flexible: Subscribers can choose how their contributions are invested, depending on their risk appetite. They can also change their investment mix as their needs and circumstances change.
  • Portable: The NPS account is portable, which means it can be transferred from one employer to another or from one pension fund manager to another.
  • Tax benefits: Contributions to the NPS are eligible for tax deductions under Section 80C of the Income Tax Act. Additionally, withdrawals at retirement are taxed at a lower rate than other forms of income.
  • Government subsidies: Subscribers can receive additional contributions from the government, up to 50% of their contributions, if they belong to certain categories such as the armed forces, government employees or women.
  • Withdrawal options: At retirement, subscribers can choose to receive a lump sum or an annuity. They can also make partial withdrawals for specific purposes, such as higher education or buying a house.
  • Regulatory oversight: The NPS is regulated by the PFRDA, ensuring that subscribers’ interests are protected and that the scheme is run fairly and transparently.

NPS Account Types

  • Tier I

It is important to note that this type of NPS account has a controlled withdrawal benefit. If you would like to open an NPS Tier I Account, you will have to invest a minimum of Rs 1,000 per year, and after having completed three years, you can make partial withdrawals. Furthermore, as a subscriber, you can withdraw 25% of your self-contribution if the funds are required for personal or business-related purposes.

  • Tier II 

There is no limit to the number of withdrawals subscribers can make with their Tier II Accounts. It is required that a subscriber have a Tier I account to open this account. There are no tax benefits associated with the Tier II Account. Whenever subscribers register for a Tier II Account, they must contribute Rs 1,000 as an initial contribution to the account.

Steps to open an NPS account online

  • Visit the official website of NPS, Click on the ‘Register’ button on the top right corner of the homepage.
  • Enter your personal details like name, date of birth, gender, etc.
  • Create a username and password.
  • Enter your PAN number and bank account details.
  • Choose the scheme in which you want to invest.
  • Enter the amount you want to invest.
  • Review all the details and click on the ‘Submit’ button.
  • You will receive a confirmation email on your registered email id.
  • Login to your account using the username and password.
  • Complete the KYC process by submitting the required documents.
  • Your account will be activated, and you can start investing.

Final Thoughts

The National Pension Scheme is a social security and pension scheme introduced by the Government of India. The NPS has been successful in attracting a large number of subscribers and has been praised for its low costs and transparent investment process. 

However, there are some concerns about the scheme, including the lack of flexibility in investment choices. But, overall, the NPS is a good retirement savings option for Indian citizens.

By Moana Snow

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