New Pension Scheme(NPS) in India

New Pension Scheme (NPS) in India is a pension scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA). NPS scheme is an excellent way of saving for your retired life. This scheme allows you to invest in equities and debt instruments during your working life to save money for the rainy day. Since this scheme has the lowest charges, it will ensure better return on your investment.

New Pension Scheme

New Pension Scheme – Salient Features

You will get a Permanent Retirement Account Number (PRAN) when you are joining the NPS. This number will not change for the rest of your life.

Tier-I Account: This is the primary account where you have to save money for your retirement. There are many restrictions in withdrawing money from this account.

Tier-II Account: This is an optional facility. You can freely withdraw your money from this account.

Investment Options in New Pension Scheme

In NPS, there are 2 investment options. They are:

  1. Active Choice
  2. Auto Choice

1.   Active Choice

 In this option, you can decide as to how your NPS contribution is to be invested.

 There are 3 options:

  1. Option E:  In this option, your money will be invested mainly in equities. The risk associated with equities applies to this. But as per the guidelines, the investments will be in shares which form part of indices like Nifty and Sensex.
  2. Option C: In this option, the investments will be in debt instruments. Naturally, you can expect less returns from these.
  3. Option G: In this option, the investments will be in fixed income instruments like Gilts. This offers low risk and low returns.

In Active Choice, you can decide investment pattern in the above 3 options as  per your choice. You can even invest 100% in Option C or G. But the investment in Option E is capped at 50%. You have the option of changing the choice later on.

2.   Auto Choice

If you cannot decide your investment choice, then you can opt for Auto Choice  option.

Here, the investments will be in a Lifecycle Fund. Your investment will be spread across all the 3 choices stated earlier. The percentage allocation to each of these options will be decided based on your age as given below:

50% of your investment will be in Option E, 30% in Option C and 20% in Option G till you are aged 35. From the age of 36, the allocation in E will be reduced by 2% yearly, and that in C will be reduced by 1% yearly and that in G will be increased by 3% yearly till it reaches 10% in E, 10% in C and 80% in G at age 55. By this activity, the Fund Manager ensures that your amount is protected from any last minute volatility of the equity market.

How to join in New Pension Scheme?

Most leading banks are acting as POPs. You can join the NPS Scheme by submitting the Registration Form (UOS-S1) to the POP-SP of your choice. The registration form is available from POP-SPs. Or you can get it from the website of PFRDA ( You can make your first contribution at the time of applying. Once your account is opened, CRA shall mail you the Welcome Kit containing your Permanent Retirement Account Number (PRAN). You will also get an Internet Password (IPIN) for accessing your account on the CRA Website.

New Pension Scheme: CRA Website

Other conditions in the New Pension Scheme

Minimum payment per deposit – Rs. 500

Minimum payment per year – Rs. 6,000

You should make at least one contribution in a year. Or you will have to pay a penalty of Rs. 100/- per year to regularise the account.  There is no upper limit fixed for your contribution.

How to withdraw money from New Pension Scheme?

There are restrictions in withdrawal till the age 60. You can withdraw only 20% of the accumulation in lump sum and the balance has to be utilised to buy an annuity from any of the annuity provider, if you are withdrawing before age 60. After age 60, you can withdraw up to 60% of the accumulation in lump sum and the rest 40% by way of annuities.

But the full accumulation will be paid to the nominee in lump sum in case of death of the member anytime.

These restrictions for withdrawals are only for Tier-1 account. You can withdraw freely from Tier-2 account.

Charges in New Pension Scheme

This scheme is having the lowest charge among such investment options. The annual fund management charge is 0.25% only.

Other than this, there is an annual maintenance charge of Rs. 350/- to the CRA and transaction charges like Rs. 40/- per transaction which is nominal.

Tax benefits in New Pension Scheme

The amount paid to NPS will qualify for deduction under 80CCD. Along with 80C and 80CCC, the limit for this is capped at Rs. 1 lakh.

Under section 80 CCD (2) if an employer contributes up to 10% of the salary to the NPS account of the employee, it will qualify for tax exemption up to Rs. 1 lakh.

The annuity from NPS Scheme is taxable.

New Pension Scheme – Good option to investors for retirement planning

New Pension Scheme can help investors to create a big retirement corpus. By capping the equity exposure at 50%, NPS will ensure that the risk is minimised. Lifecycle Fund can still reduce the risk of equity in New Pension Scheme.

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