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National Pension System (NPS): Encouraging Long-Term Planning

Why the scheme is in the news?

The Pension Fund Regulatory Development Authority (PFRDA) has announced that NPS subscribers can now purchase multiple annuity schemes from the same provider if they allocate more than Rs 10 lakh towards annuity corpus, with Rs 5 lakh going towards each annuity scheme, providing them with greater options.

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National Pension System (NPS) is a retirement savings scheme that operates on a voluntary, defined contribution basis. It allows subscribers to make regular savings during their working years, which can then be used to provide retirement income.

  1. NPS aims to encourage citizens to save for their retirement and develop the habit of long-term financial planning.
  2. The scheme is designed to address the challenge of ensuring adequate retirement income for all citizens in a sustainable way.
  3. Under NPS, individual savings are pooled into a pension fund and professionally managed by PFRDA-regulated fund managers. The funds are invested in diversified portfolios that may include government bonds, bills, corporate debentures, and shares.
  4. The value of these contributions grows over time based on the returns earned on the investments.
  5. When a subscriber exits the NPS, they can use the accumulated pension wealth to purchase a life annuity from a PFRDA-empanelled life insurance company. Alternatively, they can choose to withdraw a portion of the accumulated pension wealth as a lump sum.
  6. The deduction limit under Section 80CCD of the Income-tax Act for contributions to NPS has been increased from Rs. 1 lakh to Rs. 1.50 lakh.
  7. An additional deduction of Rs. 50,000 is available for individuals who make contributions to the NPS, over and above the limit of Rs. 1.50 lakh.

What is National Pension System (NPS)?

The government-sponsored pension scheme, known as the National Pension System (NPS), was initially launched in January 2004 exclusively for government employees. However, in 2009 it was made available to all sections of the population. Under the scheme, subscribers are able to regularly contribute towards a pension account during their working life. Upon retirement, subscribers have the option to withdraw a portion of their accumulated corpus in a lump sum, while the remaining amount can be used to purchase an annuity that provides a steady source of income after retirement. The NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA).

Advantages of NPS

  1. NPS is a flexible retirement savings scheme that offers a range of investment options and allows individuals to choose their Pension Fund Manager (PFM) to plan the growth of their investments. Subscribers can switch between investment options or fund managers subject to regulatory restrictions, and the returns are market-related.
  2. Opening an NPS account provides a Permanent Retirement Account Number (PRAN), a unique number that remains with the subscriber for life. The scheme has two tiers: Tier-I is a non-withdrawable permanent retirement account where accumulations are deposited and invested according to the subscriber’s choice. Tier-II is a voluntary withdrawable account, allowed only when there is an active Tier-I account, from which withdrawals can be made as and when needed.
  3. NPS is a portable scheme that allows for seamless portability across jobs and locations, unlike other pension plans, including EPFO. This provides hassle-free arrangements for individual subscribers.
  4. NPS is regulated by PFRDA, with transparent investment norms, regular monitoring, and performance reviews of fund managers by the NPS Trust.


To be eligible for the National Pension System (NPS), an Indian citizen, whether residing in India or abroad, must meet the following criteria:

  1. The applicant must be between 18 and 65 years old at the time of submitting their application to the Point of Presence – Service Providers (POP/POP-SP).
  2. The applicant must comply with the Know Your Customer (KYC) norms as specified in the Subscriber Registration Form.
  3. All necessary documents required for KYC compliance must be submitted in a mandatory manner.

Models under NPS

There are several models of the National Pension System (NPS) designed to cater to various categories of people. These include:

  1. All citizen model

2. Government sector model:

If an individual falls under any of the following categories, then they are mandatorily covered under the National Pension System (NPS):

  • The individual has joined the services of the Government of India on or after 01-01-2004 (with the exception of Armed Forces personnel).
  • The individual is an employee of a Central Autonomous Body and has joined the organization on or after 01-01-2004.

3. Corporate model:

The Corporate Model of the National Pension System (NPS) is open to a variety of entities, including:

  • Entities registered under the Companies Act.
  • Entities registered under various Co-operative Acts.
  • Central Public Sector Enterprises.
  • State Public Sector Enterprises.
  • Registered Partnership firms.
  • Registered Limited Liability Partnerships (LLPs).

Any body incorporated under any act of Parliament or State legislature or by order of Central/State Government. Proprietorship Concerns. Trusts/Societies. Any employee of a corporate entity, who is an Indian citizen between the ages of 18-65 years and complies with the KYC norms, is eligible to be registered as a subscriber under the NPS upon enrollment by their employer.

4. Atal Pension Yojana