National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
Under NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of Government Bonds, Bills, Corporate Debentures and Shares. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empaneled Life Insurance Company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
Benefits of NPS
- Flexible : NPS offers a range of investment options and choice of Pension Funds (PFs) for planning the growth of the investments in a reasonable manner and monitor the growth of the pension corpus. Subscribers can switch over from one investment option to another or from one fund manager to another.
- Simple : Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is structured into two tiers:
- Tier-I account : This is the non-withdrawable permanent retirement account into which the regular contributions made by the subscriber are credited and invested as per the portfolio/fund manager chosen of the subscriber.
- Tier-II account : This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when required.
- Portable : NPS provides seamless portability across jobs and across locations. It would provide hassle-free arrangement for the individual subscribers while he/she shifts to the new job/location, without leaving behind the corpus build, as happens in many pension schemes in India.
- Well Regulated : NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust. The account maintenance costs under NPS are the lowest as compared to similar pension products across the globe. While saving for a long-term goal such as retirement, the cost matters a lot as the charges can shave off a significant amount from the corpus over 35-40 years of investment period.
- Dual benefit of Low Cost and Power of compounding : Till the retirement, pension wealth accumulation grows over the period of time with a compounding effect. The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
- Ease of Access : The NPS account is manageable online. An NPS account can be opened through the eNPS portal. Further contributions can be also be made online through the following eNPS portals of CRAs:
