The National Pension System (NPS) is a government-backed, voluntary retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is designed to help you build a retirement corpus over your working years, with low costs and professional fund management.

Two types of accounts

Tier I — the pension account

  • This is the main retirement account and is required to join NPS.
  • Withdrawals before retirement are restricted, and allowed only for specific purposes and conditions.
  • It is the account linked to NPS tax benefits.

Tier II — the voluntary account

  • An optional savings account that can be opened only if you have a Tier I account.
  • Money can generally be withdrawn at any time.
  • It works more like a flexible investment account than a pension.

How your money is invested

NPS invests your contributions across a few asset classes:

  • E — equity
  • C — corporate bonds
  • G — government securities
  • A — alternative investments (with a small cap on allocation)

You can choose how to invest in one of two ways:

  • Active choice — you decide the percentage split, within the limits set for equity.
  • Auto choice — your allocation shifts automatically from equity towards safer assets as you get older, based on a lifecycle option you pick.

You also choose a pension fund manager and can change it, and your allocation, periodically.

NPS is a market-linked product. The value of your account will rise and fall with the markets, especially in the equity portion.

What happens at retirement?

When you exit NPS at retirement, your Tier I corpus is split into two parts:

  • A lump sum you can withdraw.
  • An annuity — a portion that must be used to buy a pension plan from an insurer, which pays you a regular income.

The minimum share that goes into an annuity, and the rules for smaller corpuses and early exit, are set by PFRDA and have been revised over time. Check the current rules on the official NPS website before planning your withdrawals.

Tax treatment

NPS has historically offered tax benefits on contributions — including an additional deduction over and above common tax-saving investments, and benefits on employer contributions. However, what you can claim depends on the tax regime you choose and the rules in force for the year. Confirm the current provisions before counting on any deduction.

Who might consider NPS?

  • Salaried professionals looking for a disciplined, long-term retirement account.
  • Self-employed people without an employer pension.
  • Anyone who values low costs and doesn't need access to the money until retirement.

Getting started

You can open an NPS account online with your PAN, Aadhaar and bank details. Our team can help you understand the account types, investment choices and paperwork.