Financial Inclusion in India and Its Challenges

National Pension Scheme (NPS)


From UPSC perspective, the following things are important :

Prelims level: National Pension Scheme (NPS)

Mains level: Not Much


Central Idea

  • The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a new feature for systematic withdrawal from the National Pension Scheme (NPS).

National Pension Scheme (NPS): A Brief Overview

  • The National Pension Scheme (NPS) is a voluntary retirement savings scheme launched by the Government of India in 2004.
  • It is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA).
  • The primary objective of the NPS is to provide a pension income to individuals upon their retirement.

Key Features of the NPS:

  • Contributions: Subscribers make regular contributions to their NPS account during their working years. These contributions accumulate and grow over time.
  • Investment Options: The NPS offers two investment options: a) Auto Choice: where the funds are invested based on the subscriber’s age, and b) Active Choice: where the subscriber can select the asset classes (equity, corporate bonds, and government securities) and the fund manager.
  • Portable Account: The NPS account is portable, allowing subscribers to maintain their account even if they change jobs or locations.
  • Withdrawal Options: Upon retirement, subscribers have the flexibility to withdraw a portion of their accumulated corpus as a lump sum and use the remaining amount to purchase an annuity, which provides a regular pension income.
  • Tax Benefits: NPS offers tax benefits at different stages. Contributions made by subscribers are eligible for tax deductions under Section 80C, while withdrawals are subject to certain tax exemptions.
  • Regulated and Transparent: The NPS is regulated by the PFRDA, ensuring transparency and oversight of the scheme. It follows strict investment guidelines and has mechanisms in place to safeguard the interests of subscribers.
  • Wide Coverage: The NPS is available to all Indian citizens, including salaried employees, self-employed individuals, and non-resident Indians (NRIs).

Benefits of the NPS

  • Retirement Income: The NPS provides a retirement income to subscribers, ensuring financial security during their post-retirement years.
  • Long-term Wealth Creation: The investment component of the NPS allows subscribers to accumulate wealth over time, potentially generating higher returns and building a substantial retirement corpus.
  • Flexibility and Control: Subscribers have the flexibility to choose their investment options and actively manage their NPS accounts, providing a level of control over their retirement savings.
  • Tax Efficiency: The NPS offers tax benefits both on contributions and withdrawals, making it a tax-efficient retirement savings option.
  • Portability: The portability feature of the NPS allows subscribers to continue their account irrespective of job changes or relocations.
  • Regulated and Secure: The NPS is regulated by the PFRDA, ensuring a secure and transparent framework for retirement savings.

Changes introduced: Systematic Withdrawal Plan

  • NPS subscribers will be allowed to withdraw 60% of their contributions systematically post-retirement.
  • The current system of one-time withdrawal will be replaced.
  • 40% of the contributions must be in annuity.
  • Systematic withdrawals can be customized by the subscriber based on their needs.
  • Withdrawals can be made in lump sum or on a monthly, quarterly, half-yearly, or annual basis.
  • This feature is applicable to individuals aged 60-75.

Benefits offered by this change

  • Flexibility: Subscribers can customize their withdrawals based on their financial needs.
  • Regular Income: Systematic withdrawals provide a regular income stream post-retirement.
  • Enhanced Financial Planning: Allows for better financial planning and management.


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