New Pension System - About NPS

New Pension System banner New Pension System banner

New Pension System -
About NPS


National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens

Who Can Join

  • A citizen of India including NRI (individual carrying valid Indian Passport can join NPS)
  • Age between 18 years and 60 years at the time of submission of application
  • Complied with KYC (Know Your Customers) norms

Who Cannot Join

  • Undercharged insolvent: individual who are not granted an ‘order of discharge’ by a court
  • Individuals of unsound mind: an individual is said to be of unsound mind for the purpose of making a contract if, at the time when he makes it, he is incapable of understanding it and of forming a rational judgment regarding its effect upon his / her self - interest.
  • Pre - existing account holder under NPS

Upon joining NPS, a Permanent Retirement Account (PRA) is opened and a unique Permanent Retirement Account Number (PRAN) is allotted to each subscriber by Government of India.

Subscribers invest in their PRA periodically and at the time of retirement (at the age 60 years), the accumulated wealth which is also known as Pension Wealth is made available for purchasing Pension for rest of their lives.

PRA gives access to two types of NPS accounts to Subscribers :

  • Tier I Account: This is known as pension account and is mandatory to open. Withdrawal is restricted from this account till the subscriber attains the age 60.
  • Tier II Account: This is normal investment account and is optional to open. Subscribers can withdraw from this account as per their requirements.

Tier II account can be opened along with Tier I account. Also, subscribers have the option to open Tier II account at any point of time after Tier I account is opened. Please note that an active Tier I account is mandatory for opening Tier II account

Contribution Requirement for NPS Accounts:

Particulars Tier I Tier II
Minimum Contribution required at the time of Account opening Rs. 500 Rs. 1000
Minimum Subsequent Contribution Amount required Rs. 500 Rs. 250
Minimum Contribution required per year Rs. 6000 Rs. 250
Minimum number of contribution required in a year 1 1

In Tier-II A/C minimum unit holding at the end of each Financial Year should be Rs. 2000
NPS gives Subscribers an option to invest according to their own choice and risk appetite among three funds also known as Asset Classes:

Asset Class Description
E Equity
C Fixed Income Instruments other than Govt. Securities
G Government Securities

Maximum exposure to Equity Fund (E) is restricted to 50% of corpus amount. However, subscribers can invest 100% of their corpus to Corporate Bonds or Government Securities Fund. It offers subscribers two scheme preferences also known as Investment Options:

Investment Option Description
Active Choice
  • Under this option, Subscribers are free to allocate the investment across three asset classes as per their choice
  • Maximum allocation to asset class E is restricted to 50%
Auto Choice
  • Under this option, investment across three funds is made as per the pre-defined pattern known as life - cycle fund
  • It depends on the age of the person

Life Cycle Fund: Pre-defined Investment Pattern

Age E (%) C (%) G (%) Age E (%) C (%) G (%)
<=35 50 30 20 46 28 19 53
36 48 29 23 47 26 18 56
37 46 28 26 48 24 17 59
38 44 27 29 49 22 16 62
39 42 26 32 50 20 15 65
40 40 25 35 51 18 14 68
41 38 24 38 52 16 13 71
42 36 23 41 53 14 12 74
43 34 22 44 54 12 11 77
44 32 21 47 >=55 10 10 80
45 30 20 50  

As a unique feature, subscribers get an option to select a fund manager to manage their investment portfolio. Currently, 7 fund managers are registered with PFRDA to manage the investment portfolio of NPS Subscribers.

  • Kotak Mahindra Pension Fund Limited
  • ICICI Prudential Pension Funds Management Company Limited
  • LIC Pension Fund Limited
  • SBI Pension Funds Private Limited
  • UTI Retirement Solutions Limited
  • Reliance Capital Pension Fund Limited
  • HDFC Pension Management Company Limited

Vesting from Tier I Account

Particulars Before the age 60 At the age 60
Minimum Amount required to buy Annuity 80% of Pension Wealth 40% of Pension Wealth
Withdrawal of Balance Amount Only in Lump sum immediately Only in Lump sum at any point of time before attaining the age 70 years
When would Annuity start Annuity will start immediately irrespective of age of the subscriber at the time of withdrawal Annuity will start immediately
What happens to PRAN PRAN will be closed; subscriber will not be allowed to enter into NPS again PRAN will be closed. No transaction will be processed / accepted after that
What happens if Tier II account is also there Amount available in Tier II account will be credited to Subscriber’s Bank account automatically and Tier II account will also be closed. Amount available in Tier II account will be credited to Subscriber’s Bank account automatically and Tier II account will also be closed.

Annuity Services: On retirement, Subscriber can select any of the PFRDA registered Life Insurance Companies to offer Annuity Plans. Below is the list of Life Insurance companies registered with PFRDA to provide annuity services

  • Life Insurance Corporation of India Limited
  • SBI Life Insurance Company Limited
  • ICICI Prudential Life Insurance Company Limited
  • Bajaj Allianz Life Insurance Company Limited
  • Star Union Dai-ichi Life Insurance Company Limited
  • Reliance Life Insurance Company Limited
  • HDFC Standard Life Insurance Company Limited

Intermediaries in NPS Architecture

  • POP / POP - SP: Point of Presence / Point of Presence - Service Provider is first point of contact for subscribers under NPS architecture. Primary role for POP / POP - SP is marketing of NPS and providing services to all NPS subscribers.
  • CRA: Central Recordkeeping Agency is responsible for recordkeeping, servicing of customer requests processed through POP / POP - SP, issuance of PRAN card and Welcome KIT etc. It is also responsible for providing strong system support for customers and POP / POP - SP. NSDL is CRA in NPS architecture
  • Pension Fund Manager: PFM is responsible for investment of contribution amount deposited by the subscribers
  • Trustee Bank: Trustee Bank is an interface with CRA and Pension Fund Managers. It manages the banking of Pension Funds in accordance with applicable provisions of NPS.
  • Custodian: Stock Holding Corporation of India Limited (SCHIL) acts as Custodian in NPS architecture. The entity is responsible for holding and safeguarding assets of the NPS Trust.
  • Annuity Service Provider: Annuity Service Providers are responsible for delivering a regular monthly pension to subscribers for rest of their lives.
  • NPS Trust: The NPS Trust is established by PFRDA. It is responsible for taking care of funds under NPS. The trust holds an account with Trustee Bank.