National Pension System

The National Pension System is a retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). You contribute during your working years; pension fund managers invest the money in equity, corporate bonds and government securities; and at exit you take part of the corpus as a lump sum and use part to buy an annuity that pays a pension. What you receive depends on what you put in and how the investments perform — it is not a fixed pension.

• Tier I — the retirement account. Withdrawals are restricted until exit, and this is the account that carries tax benefits.
• Tier II — an optional, flexible investment account opened alongside Tier I. Money can be withdrawn freely, but there are generally no tax benefits.

See Tier I and Tier II for the details.

• Active choice — you set the split across equity, corporate debt and government securities, within an equity ceiling that reduces with age.
• Auto choice — lifecycle funds that reduce equity and increase debt as you age, at an aggressive, moderate or conservative pace.
• Multiple Scheme Framework — since October 2025, non-government subscribers can also hold additional schemes under the same PAN, including higher-risk variants that may invest up to 100% in equity.

You choose a pension fund manager and can change it, and your allocation, within limits set by PFRDA.

PFRDA revised the exit and withdrawal rules for non-government subscribers in December 2025. Under the current rules:

• At normal exit (from 60, or superannuation) you can generally take up to 80% of the corpus as a lump sum; at least 20% must buy an annuity. Smaller corpora can be withdrawn in full.
• You can stay invested longer — exit can be deferred up to age 85.
• Partial withdrawals are permitted for specified needs, a limited number of times, after a minimum period.
• Leaving early comes with a larger compulsory annuity share.

Government employees, including those eligible for the Unified Pension Scheme, follow different rules. Exit rules have changed several times — confirm the current position before you plan around them.

You get a Permanent Retirement Account Number (PRAN), which stays with you across jobs and cities. Accounts can be opened online or through a point of presence such as a bank. Parents can also open an NPS Vatsalya account for a minor child. Costs — fund management, record-keeping and point-of-presence charges — are low compared with most retail investment products, which matters over a working life of contributions.

• Your own contributions can be deducted under the old tax regime, within the overall limit for such investments plus an additional NPS-specific deduction.
• Employer contributions are deductible up to a percentage of salary, under the new regime as well as the old.
• At exit, part of the lump sum is exempt from tax under current rules; the annuity income is taxed as income in the years you receive it.

NPS is designed for retirement. Its strengths — low costs, regulated fund managers, disciplined access — come from the same rules that make it unsuitable for money you may need sooner. Many people use it alongside other investments rather than instead of them.

Estimate what retirement could cost with the Retirement Calculator, and see how a later start changes the monthly amount in Cost of Waiting.

CompoundX explains how NPS fits into a retirement plan alongside your other savings. If you'd like to explore it further, a CompoundX expert can walk you through the choices. Accounts are opened and contributions processed through PFRDA-registered points of presence.

Active choice gives you control of the asset mix, within an equity ceiling that steps down with age. Auto choice follows a lifecycle path: equity is highest when you are young and reduces gradually, at a pace set by the aggressive, moderate or conservative option you pick.

Auto choice suits people who would rather not revisit their allocation; active choice suits those who will. Either way, review it occasionally — a default left untouched for decades is still a decision.

At exit, the lump-sum portion can be taken at once or spread over time, and the annuity portion buys a pension from a PFRDA-empanelled annuity service provider. Annuity types differ: for life only, joint life with a spouse, with or without return of the purchase price. Each choice trades income level against what remains for your family.

Note: These rules were revised in December 2025 for non-government subscribers. Check the current PFRDA rules for your category before planning around them.

• Own contributions: deductible under the old tax regime within the overall limit for such investments, plus an additional deduction specific to NPS (₹50,000 under current rules).
• Employer contributions: deductible up to a percentage of salary (14% under the new regime under current rules), subject to an overall cap on employer retirement contributions.
• Lump sum at exit: under current tax rules, the exemption covers 60% of the corpus. The larger lump sum permitted since December 2025 may therefore be partly taxable.
• Annuity income: taxed at your slab rate when received.

Tax rules change and depend on your circumstances. This is general education, not tax advice — check the latest provisions or speak to a tax professional.

NPS sits beside EPF, PPF, mutual funds and other assets in a retirement plan — not in place of them. A practical way to think about it: NPS offers cost efficiency and disciplined access, while other investments give flexibility. The Retirement Calculator and SWP Calculator help size both the corpus and the income it could support.