The National Pension System Diwas (NPS Diwas) is celebrated on October 1 every year by the Pension Fund Regulatory and Development Authority (PFRDA) to promote pension and retirement planning among the citizens of India.
The pension regulator wants everyone — both working professionals and self-employed individuals — to start planning for their retirement. By creating a pension fund, you can secure a financially stable future after you stop working. If you join the National Pension System (NPS), you can benefit from tax deductions on your contributions, the power of compounding, and receive a regular income after retirement.
The Pension Fund Regulatory & Development Authority Act was passed on 19 September 2013 and the same was notified on 1 February 2014. PFRDA is regulating NPS, subscribed by employees of Govt. of India, State Governments and by employees of private institutions/organizations & unorganized sectors. The PFRDA is ensuring the orderly growth and development of the pension market.
NPS Vs MF Vs PPF Vs EPF
Offering a balanced mix of equity, corporate debt, and government securities, NPS provides flexibility in managing risk while building a strong retirement corpus, says Rochak Bakshi, Founder and CEO of True North Financial Services.
“On this NPS Diwas, it’s vital to see NPS as more than just a savings tool—it’s a strategic financial solution. With its tax benefits, disciplined saving approach, and compounding growth, NPS helps ensure a financially secure future,” he adds.
“Though returns are not guaranteed, NPS has delivered in between 9% to 12% CAGR which is comparable to the returns profile of the large cap mutual funds. This is much better than the 7.1% offered by PPF or 8.15% offered by the Employee Provident fund,” Bakshi elaborates.
NPS: Key features and account types
There are two types of NPS accounts: Tier I and Tier II NPS account:
Tier I NPS Account: This account requires a minimum investment of INR 500 with no maximum limit. It has a lock-in period until the account holder reaches the age of 60. Upon maturity, individuals can withdraw up to 60% of the accumulated amount, while the remaining 40% must be used to purchase an annuity from an insurance provider, ensuring a monthly pension.
Tier II NPS Account:
The Tier II NPS Account is a voluntary account designed for individuals who already have a Tier I account. To open a Tier II account, a minimum deposit of ₹250 is required.
Who can open an NPS account?
Any citizen of India, both resident and non-resident, aged between 18 and 70 years (as of the date of NPS application) can join the NPS.
Also read: Pensioners alert! What to do if you lose or damage Pension Payment Order | How to get a copy of PPO
NPS Tax Benefits:
Tax Deduction: Individuals can claim a tax deduction of up to 10% of their salary (Basic + DA) under Section 80 CCD(1), subject to an overall ceiling of Rs 1.50 lakh under Section 80 CCE.
Additional Tax Deduction: An additional deduction of up to Rs 50,000 is available under Section 80 CCD(1B) over and above the ₹1.50 lakh limit under Section 80 CCE.
Recent NPS rule changes:
On August 24 this year, the Centre announced a new pension scheme called Unified Pension Scheme (UPS) for central government employees. The UPS to some extent resembles the Old Pension Scheme (OPS) as it guarantees government employees a pension equal to 50% of their average monthly salary of 12 months. From April 1, 2025, central government employees will have both options to choose from – UPS and NPS.
The Unified Pension Scheme (UPS), approved by the Cabinet on August 24, offers several benefits:
Family Pension: In the event of a government employee’s death, their family will receive a pension equal to 60% of the deceased employee’s pension.
Lump Sum Benefits: Employees will receive a lump sum retirement payout, in addition to gratuity benefits, at the time of retirement.
Inflation Adjustments: The scheme includes periodic dearness relief adjustments in line with inflation trends.
Minimum Pension: Individuals who complete at least 10 years of service with the central government are guaranteed a minimum pension of Rs 10,000 per month.