National Pension Scheme (NPS)

The NPS is regulated and managed by the Pension Fund Regulatory and Development Authority (PFRDA), which was established by the Government of India.

NPS offers two types of accounts: Tier I and Tier II.

• Tier I Account: This is a mandatory, long-term retirement account with restrictions on withdrawals. It is designed to provide a pension post-retirement.
• Tier II Account: This is a voluntary savings account that allows more flexibility in terms of withdrawals and deposits. However, it can only be opened if an individual already has a Tier I account.

NPS offers a choice of investment options, allowing subscribers to allocate funds across various asset classes, including equities, corporate bonds, and government securities. Subscribers can choose between Active and Auto Choice options based on their risk preferences.

Contributions to the NPS are eligible for tax benefits under Section 80CCD of the Income Tax Act. Additionally, there is an exclusive tax benefit for an employer's contribution to the NPS on behalf of the employee.

Withdrawals from the Tier I account are restricted and are generally allowed only upon reaching the retirement age or in specific circumstances like critical illness or early retirement. A portion of the accumulated corpus must be used to purchase an annuity that provides a regular pension.

At the time of exit, subscribers must use at least 40% of the accumulated corpus to purchase an annuity. The remaining 60% can be withdrawn as a lump sum.

NPS is portable across jobs and locations. Subscribers can continue their NPS account even if they change employers or locations.