Module 17: NPS – National Pension System

The National Pension System is a government-backed, market-linked retirement scheme regulated by PFRDA. Money is invested through pension fund managers until retirement, when part of it is taken as a lump sum and part buys an annuity. This module explains the moving parts.

01What NPS is

A long-term retirement account. Contributions are invested in equity, corporate bonds and government securities, and the balance grows with those markets.

02Tier I and Tier II

Tier I is the main pension account, with limits on withdrawal before retirement. Tier II is an optional, more flexible savings account attached to it.

03Choosing how it is invested

Active choice lets you set the split between asset classes within limits; auto choice shifts from equity to debt as you age. You also choose a pension fund manager.

04Costs

NPS is low-cost compared with most retirement products, with small charges for the fund manager, the record-keeping agency and transactions.

05Tax treatment

Contributions can qualify for tax deductions under specific sections, and part of the withdrawal at retirement is tax-free. The details depend on the tax regime you choose and change with budgets; check the current rules.

06At retirement

A part of the corpus can be withdrawn as a lump sum, and the rest must buy an annuity that pays a regular pension. The exact proportions are set by PFRDA rules.

07Early exit and partial withdrawal

Withdrawals before retirement are allowed only for specified reasons and within limits, which keeps the money for its purpose.

08Where this leads

A1Stock does not recommend pension products; this module explains how NPS works so you can compare it yourself.