NPS full form stands for National Pension Scheme. NPS is an initiative undertaken by the Government of India with the aim of providing retirement benefits to all the citizens of India. NPS seeks to inculcate the habit of saving for retirement amongst the citizens.
Here, we will cover the objectives of NPS, types of NPS accounts, interest rates and benefits. Before that, let us first understand the National Pension Scheme in brief.
Regulated and administered by the PFRDA or Pension Fund Regulatory and Development Authority under the PFRDA Act 2013, NPS is a defined, voluntary contribution scheme that is market-linked and managed by professional fund managers.
Under NPS, individual savings are pooled into a pension fund which is invested by PFRDA-regulated professional fund managers into diversified portfolios comprising Government Bonds, Bills, Corporate Debentures, and Shares.
Contributions made by individual subscribers to the National Pensions Scheme under the system are accumulated until retirement, and corpus growth continues via market-linked returns. Subscribers also have the option to exit this plan before retirement or opt for superannuation. However, this scheme ensures that a part of savings is utilized to provide a subscriber with retirement benefits.
Thus, on retirement, exit or superannuation, at least 40% of the contribution is utilized for the procurement of a lifetime pension via the purchase of an annuity. The remaining funds are paid to the subscriber in a lump sum.
Now that you know what is NPS scheme, let's understand its objectives-
Following are the key features of National Pension Scheme-
The National Pension System allows individuals to make systematic investments via either of the following two accounts.
NPS account opening is followed by the generation of a unique Permanent Retirement Account Number or PRAN issued to each subscriber. Fund management, including contribution to this scheme, is done via PRAN.
Thus, as per the National Pension System architecture, individuals can subscribe to the National Pensions Scheme with PFRDA-appointed intermediaries via the two accounts mentioned above.
These intermediaries can include –
Subscribers can opt for either of the following two investment options, thus providing the flexibility of choice.
It is available as a default option for subscribers as per the system. Fund investments under this option are managed automatically by an appointed fund manager as per an investor’s age profile.
Under this option, individuals are free to decide among available asset classes in which to invest their funds. Also, they can allocate different percentages of contributed funds to be invested in with a maximum cap of 50% for Asset Class E or Equities. Other Asset Classes include Class C, i.e., Corporate Debt Securities and Class G or Government Securities.
Alongside, subscribers also have an option to switch their investment options as well as change their fund manager. These options are, however, subject to certain constraints.
Another of NPS scheme benefits includes an option to withdraw their contributions partially. It gives individuals partial accessibility to their funds saved over the years, thus allowing them to meet financial needs before retirement during emergencies.
As per the rules regarding partial withdrawal, a subscriber can make withdrawals of their Tier I scheme contribution up to a maximum NPS Contribution limit of 25%.
Withdrawals are, however, subject to the following clauses.
An individual’s eligibility for the National Pension System depends on the various NPS models in operation. These are –
The pension system is applicable for government employees, both central and state, except for those employed with the armed forces.
Under this model, a contribution of 10% of a government employee’s salary goes to the National Pension System with an equal contribution by the government. Central Government employees receive a contribution of 14% from the government.
Also, all states in the country have implemented the NPS National Pension System, excluding the Government of West Bengal.
As per the corporate model, corporate employees enrolled by their employers can utilize the NPS benefits of the pension system. To do so, they must be Indian citizens between the age of 18 and 60 years, fulfilling the KYC requirements.
The model is applicable for entities as under.
All citizens of India meeting the following eligibility criteria can voluntarily opt for enrolment and contribute to the NPS pension scheme towards their retirement security.
Tier I and Tier II are the two primary account types under the NPS. The first is the default account, while the second is an optional addition. The table below provides a detailed explanation of the two account kinds.
|
Particulars |
NPS Tier – 1 Account |
NPS Tier – 2 Account |
|
Status |
Default |
Voluntary |
|
Withdrawal |
Not Permitted |
Permitted |
|
Tax Exemption |
Until Rs.2 lakhs per annum |
From Rs 1.5 lakh for government employees and none for others |
|
Minimum Contribution |
From ₹500 or ₹1000 per annum |
₹250 |
|
Maximum Contribution |
No Limit |
No limit |
The interest rate on NPS is determined by the performance of the assets. As a result, the amount of return received upon retirement cannot be predicted in advance.
NPS is a market-linked product that allows you to invest in a variety of assets, such as stock, government debt, corporate debt, and alternative assets.
Once the asset mix and fund manager are determined, the money is invested in specific schemes that invest in these four asset classes.
|
SCHEME - G Tier-I
|
Pension Fund | Returns 1 Year |
Returns 5 Years |
Returns 10 Years |
| Aditya Birla Sun Life Pension Management Ltd. | 8.40% | 8.00% | NA | |
| Axis Pension Fund Management Limited | 7.63% | NA | NA | |
| HDFC Pension Management Co. Ltd. | 8.03% | 7.91% | 9.37% | |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 8.13% | 7.71% | 9.38% | |
| Kotak Mahindra Pension Fund Ltd. | 8.36% | 7.90% | 9.42% | |
| LIC Pension Fund Ltd. | 8.05% | 8.17% | 10.01% | |
| Max Life Pension Fund Management Limited | 8.11% | NA | NA | |
| SBI Pension Funds Pvt. Ltd | 8.32% | 7.77% | 9.45% | |
| Tata Pension Management Pvt. Ltd. | 8.01% | NA | NA | |
| UTI Retirement Solutions Ltd. | 8.30% | 7.74% | 9.15% | |
| DSP Pension Fund Managers Private Limited | NA | NA | NA | |
| Benchmark Return as on 29.12.2023 | 8.10% | 7.42% | 8.83% |
|
SCHEME - G Tier-II
|
Pension Fund | Returns 1 Year |
Returns 5 Years |
Returns 10 Years |
| Aditya Birla Sun Life Pension Management Ltd. | 8.26% | 7.90% | NA | |
| Axis Pension Fund Management Limited | 7.27% | NA | NA | |
| HDFC Pension Management Co. Ltd. | 8.10% | 7.73% | 9.16% | |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 8.07% | 7.73% | 9.37% | |
| Kotak Mahindra Pension Fund Ltd. | 8.25% | 7.70% | 9.27% | |
| LIC Pension Fund Ltd. | 8.21% | 8.37% | 10.01% | |
| Max Life Pension Fund Management Limited | 7.31% | NA | NA | |
| SBI Pension Funds Pvt. Ltd | 8.38% | 7.67% | 9.38% | |
| Tata Pension Management Pvt. Ltd. | 8.18% | NA | NA | |
| UTI Retirement Solutions Ltd. | 8.14% | 7.67% | 9.22% | |
| DSP Pension Fund Managers Private Limited | NA | NA | NA | |
| Benchmark Return as on 29.12.2023 | 8.10% | 7.42% | 8.83% |
|
SCHEME - C Tier-I
|
Pension Fund | Returns 1 Year |
Returns 5 Years |
Returns 10 Years |
| Aditya Birla Sun Life Pension Management Ltd. | 7.43% | 8.28% | NA | |
| Axis Pension Fund Management Limited | 7.51% | NA | NA | |
| HDFC Pension Management Co. Ltd. | 7.49% | 8.52% | 9.22% | |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 7.50% | 8.02% | 9.16% | |
| Kotak Mahindra Pension Fund Ltd. | 7.37% | 7.52% | 8.69% | |
| LIC Pension Fund Ltd. | 7.05% | 8.12% | 8.92% | |
| Max Life Pension Fund Management Limited | 7.13% | NA | NA | |
| SBI Pension Funds Pvt. Ltd | 7.28% | 8.08% | 9.01% | |
| Tata Pension Management Pvt. Ltd. | 6.87% | NA | NA | |
| UTI Retirement Solutions Ltd. | 7.45% | 7.74% | 8.70% | |
| DSP Pension Fund Managers Private Limited | NA | NA | NA | |
| Benchmark Return as on 29.12.2023 | 7.27% | 8.62% | 9.35% |
|
SCHEME - C Tier-II
|
Pension Fund | Returns 1 Year |
Returns 5 Years |
Returns 10 Years |
| Aditya Birla Sun Life Pension Management Ltd. | 7.24% | 8.10% | NA | |
| Axis Pension Fund Management Limited | 6.08% | NA | NA | |
| HDFC Pension Management Co. Ltd. | 7.49% | 8.29% | 8.51% | |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 7.42% | 7.92% | 9.06% | |
| Kotak Mahindra Pension Fund Ltd. | 7.23% | 7.73% | 8.72% | |
| LIC Pension Fund Ltd. | 7.10% | 8.44% | 8.62% | |
| Max Life Pension Fund Management Limited | 6.87% | NA | NA | |
| SBI Pension Funds Pvt. Ltd | 7.08% | 7.60% | 8.71% | |
| Tata Pension Management Pvt. Ltd. | 6.89% | NA | NA | |
| UTI Retirement Solutions Ltd. | 7.27% | 7.71% | 8.69% | |
| DSP Pension Fund Managers Private Limited | NA | NA | NA | |
| Benchmark Return as on 29.12.2023 | 7.27% | 8.62% | 9.35% |
|
SCHEME -A Tier-I
|
Pension Fund | Returns 1 Year |
Returns 5 Years |
Returns 10 Years |
| Aditya Birla Sun Life Pension Management Ltd. | 4.36% | 5.73% | NA | |
| Axis Pension Fund Management Limited | 6.85% | NA | NA | |
| HDFC Pension Management Co. Ltd. | 6.00% | 8.54% | NA | |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 2.69% | 6.21% | NA | |
| Kotak Mahindra Pension Fund Ltd. | 3.87% | 6.70% | NA | |
| LIC Pension Fund Ltd. | 4.40% | 7.34% | NA | |
| Max Life Pension Fund Management Limited | 6.75% | NA | NA | |
| SBI Pension Funds Pvt. Ltd | 4.99% | 8.76% | NA | |
| Tata Pension Management Pvt. Ltd. | 7.77% | NA | NA | |
| UTI Retirement Solutions Ltd. | 1.60% | 5.16% | NA | |
| DSP Pension Fund Managers Private Limited | NA | NA | NA |
Here's how to open a National Pension Scheme online and offline-
Individuals can register and obtain a subscription to the National Pension System through the online platform eNPS. Registration for the scheme can be done in the following steps-
Step 1 – Go to the eNPS portal available at the official website of the National Pension System.
Step 2 – Choose your subscriber type from the available options ‘Individual Subscriber’ and ‘Corporate Subscriber’.
Step 3 – Choose your suitable residential status. The options include ‘Citizen of India’ and ‘NRI’.
Step 4 – Opt for either Tier I account type or both accounts, as a choice of the former is mandatory for long-term savings.
Step 5 – Enter your PAN details and select a suitable bank or PoP. It is ideal to choose a PoP with whom you have an existing relationship, such as a savings/current/Demat/account for KYC verification, as the chosen PoP will do it.
Step 6 – Upload the scanned copy of your PAN card along with a cancelled cheque. The image format should be in .jpg, .jpeg or .png format with a file size of 4KB to 2MB.
Step 7 – Next, upload your scanned photograph and signature in the same format and size as above.
Step 8 – Once routed to the payment gateway, proceed to pay the required charges via Net Banking.
Step 9 – With the completion of payment, your Permanent Retirement Account Number will be generated.
To open an NPS account offline or manually, you must first locate a PoP – Point of Presence (which might be a bank). Collect a subscriber form from your nearest PoP and turn it in with your KYC documents. If you are already KYC-compliant with that bank, disregard it.
The PoP will issue you a PRAN – Permanent Retirement Account Number – once you make the initial contribution (not less than Rs.500, Rs.250 monthly, or Rs.1,000 annually).
This number, along with the password in your sealed welcome kit, will assist you in operating your account. This method requires a one-time registration cost of Rs.125.
After your NPS account is created and PRAN is allocated, log in to your E- NPS account through various mediums, such as via the NSDL NPS portal, the KFintech portal or net banking account.
Let us understand the process to log in to your PRAN account-
If you are logging in for the first time, you will have to create a new password using the following steps-
If you are logging in for the first time, follow the steps mentioned below-
Tax benefits for National Pension Scheme investments are available under the following sections.
|
Applicable Sections under the Income Tax Act 1961 |
Tax Benefits Allowed |
|
U/S 80CCD (1) |
Own contribution of a subscriber towards Tier I investments tax-deductible within the total ceiling of Rs.1.5 lakh u/s 80C. |
|
U/S 80CCD 1(B) |
In addition to deductions under section 80CCD (1), subscribers are allowed up to Rs.50,000 as deductions towards Tier I contributions. |
|
U/S 80CCD (2) |
Contribution of an employer towards Tier I investments is eligible for deduction up to 14% for central government contributions and up to 10% for others. This deduction is over and above the deduction limit applicable u/s 80C. |
The National Pension Scheme Details has other tax benefits on NPS Tier I investments including –
Thus, after 60 years of age, if the total corpus created through the National Pension System amounts to Rs. 20 Lakh, a lump sum withdrawal of 40%, i.e., Rs.8 lakh, will not attract any tax.
Further, if you utilize the remaining 60% of funds for annuity purchases, the entire corpus will be tax-free. Only the income generated from the annuity will be taxable.