National Pension System (NPS)

National Pension System (NPS):
  • It is easily accessible, low cost, tax-efficient, flexible and portable retirement savings account.
  • It was launched in 2004 and was initially introduced for new Government recruits (except armed forces).
  • It aims to institute pension reforms in country and to inculcate habit of saving for retirement amongst the citizens.
  • Its objective is to provide retirement income to all the citizens.
  • According to the scheme, employees contribute to their pension corpus from their salaries, with matching contributions from the government.
  • The collected funds are invested in schemes through Pension Fund Managers.
  • On retirement, employees can withdraw 60% of the corpus fund, which is tax-free and the remaining 40% is invested in annuities, which are taxed.
  • The scheme has two components called Tier I and II accounts.
    • A Tier-II account is similar to a savings account that offers flexibility in terms of withdrawal.
    • Individuals can withdraw from a Tier-II account at any point, unlike the Tier I account.
  • It was extended for all citizens of country from 2009 including the unorganised sector workers on voluntary basis.
  • NPS is governed and administered by Pension Fund Regulatory and Development Authority (PFRDA).
  • Currently, any Indian between age of 18 to 65 years may voluntarily join the NPS.
  • NRI can open an NPS account, however contributions made by NRI are subject to regulatory requirements as prescribed by RBI and FEMA from time to time.
Previous Year Questions:
Q 1.) Who among the following can join the National Pension System (NPS)? (2017)
(a) Resident Indian citizens only
(b) Persons of age from 21 to 55 only
(c) All State Government employees joining the services after the date of notification by the respective State Governments
(d) All Central Government employees including those of Armed Forces joining the services on or after 1st April, 2004
Ans (c)