# National Pension System
The **National Pension System** (NPS) is India's regulated, defined-contribution pension scheme, introduced for central government employees joining from 1 January 2004 and later extended to all citizens, in which retirement income depends on contributions and their investment returns rather than a government-guaranteed benefit[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3). It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and, as of 31 March 2026, held assets of approximately ₹15.95 trillion (₹15.95 lakh crore) for more than 21.7 million (2.17 crore) subscribers[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3).
| Key fact | Detail |
|---|---|
| Origin | Adopted in 2003 to relieve fiscal pressure from the defined-benefit Old Pension Scheme; applied to central government new entrants from 1 January 2004[2](https://arxiv.org/pdf/2408.13200) • [1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3) |
| Scale | AUM ≈ ₹15.95 trillion (₹15.95 lakh crore), 21.7 million (2.17 crore) subscribers (31.3.2026); FY15–FY25 CAGRs of 9.5% (subscribers) and 37.3% (AUM)[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3) • [3](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219928&lang=1®=3) |
| Accounts | Tier I: mandatory, generally non-withdrawable before exit, subject to permitted partial withdrawals, tax-benefited; Tier II: voluntary savings account with unlimited withdrawals and no tax benefits[4](https://pfrda.org.in/documents/33652/217954/NPS+All+Citizen+Model.pdf/8f46c71a-9f36-75ac-e821-237551dfb958?t=1753679966626) |
| Tax | 80CCD(1) under the old tax regime, within the ₹150,000 (₹1.5 lakh) 80CCE ceiling, extra ₹50,000 under 80CCD(1B), employer 80CCD(2) within a ₹750,000 (₹7.5 lakh) aggregate cap; up to 60% lump sum at exit exempt under 10(12A)[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19) |
| Exit at 60 | Maximum 60% lump sum, at least 40% annuitised with an IRDAI-registered provider; entire corpus paid as lump sum if below ₹500,000 (₹5 lakh)[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19) |
| Returns | Long-term returns of 9%–12% depending on asset mix; 5-year medians of 19.5% (equity schemes), 6.9% (corporate bonds), 6.2% (government bonds)[6](https://www.etmoney.com/learn/nps/epf-vs-nps/) |
| UPS option | Unified Pension Scheme effective 1 April 2025 for central government employees: assured payout with a ₹10,000/month minimum, funded by 10% employee plus 10% government plus an estimated 8.5% pool contribution[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3) • [7](https://constitutionofindia.in/wp-content/uploads/2025/03/Unified-Pension-Scheme-gazette-notification.pdf) |
## What the National Pension System is
NPS replaced a pay-as-you-go defined benefit system in which the state guaranteed a fixed pension. The government's stated reason for the change was the unsustainable fiscal liability of the Old Pension Scheme (OPS) on the exchequer; the 2003 adoption was designed to address fiscal pressures that the defined-benefit system posed as long-term financial risk[8](https://sansad.in/getFile/lsapps/loksabhaquestions/annex/188/AU3636_4p95Uf.pdf) • [2](https://arxiv.org/pdf/2408.13200). Under NPS the pension quantum depends on the returns earned on contributions, and employees bear a higher contribution burden than under the earlier system[9](https://iariw.org/wp-content/uploads/2025/03/Sethia_Tokyo.pdf).
Two accounts, one system. Every subscriber holds a Tier I account, the mandatory retirement account, generally non-withdrawable before exit except for permitted partial withdrawals, and may add a voluntary Tier II account that functions as a flexible savings facility with unlimited withdrawals and no tax benefits; an active Tier I account is a prerequisite for Tier II, and one-way transfers from Tier II to Tier I are allowed[4](https://pfrda.org.in/documents/33652/217954/NPS+All+Citizen+Model.pdf/8f46c71a-9f36-75ac-e821-237551dfb958?t=1753679966626). Minimum contributions are ₹500 at Tier I account opening (₹6,000 per year) and ₹1,000 for Tier II (₹250 per subsequent contribution)[4](https://pfrda.org.in/documents/33652/217954/NPS+All+Citizen+Model.pdf/8f46c71a-9f36-75ac-e821-237551dfb958?t=1753679966626).
## How contributions flow
Contributions travel through a chain of intermediaries. Money is paid in through Points of Presence to a Trustee Bank, with contribution information sent to the Central Recordkeeping Agency (CRA); the CRA then directs the Trustee Bank to forward the funds to Pension Fund Managers, which invest them under PFRDA investment guidelines[10](https://housefinance.dauphine.fr/fileadmin/mediatheque/houseoffinance/documents/international_pension_workshop/13th_workshop/Sane.pdf). Eight recognized Pension Fund Managers, including SBI Pension Funds, LIC Pension Fund, HDFC Pension Management, and ICICI Prudential Pension Funds, manage the corpus[11](https://ijrpr.com/uploads/V7ISSUE6/IJRPR66603.pdf).
[Central government](https://www.edgepedia.org/central-government) subscribers contribute 10% of basic salary plus dearness allowance; the government contribution to their NPS account is 14%[11](https://ijrpr.com/uploads/V7ISSUE6/IJRPR66603.pdf).
## Asset allocation: Active vs Auto
Subscribers choose between two approaches across three asset classes: E (equity), C (corporate bonds), and G (government securities)[4](https://pfrda.org.in/documents/33652/217954/NPS+All+Citizen+Model.pdf/8f46c71a-9f36-75ac-e821-237551dfb958?t=1753679966626).
**Active Choice** lets the subscriber set the mix, with equity exposure capped at 75% for subscribers under 50 under the PFRDA ([Investment](https://www.edgepedia.org/investment)) Guidelines 2019, reducing on a lifecycle schedule; there is no limit on government securities[11](https://ijrpr.com/uploads/V7ISSUE6/IJRPR66603.pdf).
**Auto Choice** is the age-based lifecycle default. Under it, a subscriber under age 35 holds 50% equity, 30% corporate bonds, and 20% central government securities, with the risky-asset weight declining toward retirement[10](https://housefinance.dauphine.fr/fileadmin/mediatheque/houseoffinance/documents/international_pension_workshop/13th_workshop/Sane.pdf). The 2024 Balanced Life Cycle Fund extended the 50% equity exposure to age 45, compared with age 35 previously[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3).
Central government employee contributions are invested by three public sector PFMs in a fixed 85% fixed-income and 15% equity split[10](https://housefinance.dauphine.fr/fileadmin/mediatheque/houseoffinance/documents/international_pension_workshop/13th_workshop/Sane.pdf).
## Tax treatment and contribution limits
NPS follows an EET (exempt-exempt-taxed) structure with specific carve-outs. Under the old tax regime, employee contributions are deductible under Section 80CCD(1) up to 10% of salary (Basic + DA), or 20% of gross income for the self-employed, within the overall ₹150,000 (₹1.5 lakh) ceiling under Section 80CCE; an additional deduction of up to ₹50,000 is available under Section 80CCD(1B)[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19). Employer contributions are deductible under Section 80CCD(2) over and above the 80CCE ceiling, subject to an aggregate ₹750,000 (₹7.5 lakh) limit shared with provident fund and superannuation contributions[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19).
At exit, up to 60% of the corpus received as lump sum is exempt from income tax under Section 10(12A), partial withdrawal amounts are exempt under 10(12B), and the 1.8% GST does not apply to annuity plans purchased through NPS[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19). One cited comparison described the tax-deductibility of employer contributions as capped at 10% of salary under NPS, compared with 12% for EPF and other recognized funds[10](https://housefinance.dauphine.fr/fileadmin/mediatheque/houseoffinance/documents/international_pension_workshop/13th_workshop/Sane.pdf).
## Withdrawal, annuitisation and retirement income
**Normal exit at 60.** A subscriber may withdraw a maximum of 60% of the corpus as lump sum and must use at least 40% to purchase an annuity from an Annuity Service Provider registered with IRDAI; if the corpus is below ₹500,000 (₹5 lakh), the entire amount is paid as lump sum[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19). The annuitised amount then provides monthly pension, and annuity income is taxable in the hands of the recipient under the EET structure[10](https://housefinance.dauphine.fr/fileadmin/mediatheque/houseoffinance/documents/international_pension_workshop/13th_workshop/Sane.pdf).
**Premature exit.** Premature exit is permitted after 5 years of membership, or after 3 years for a subscriber who joined after age 60, with a maximum 20% lump sum and at least 80% annuitised; if the corpus is below ₹250,000 (₹2.5 lakh) the entire corpus is paid as lump sum[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19).
**Partial withdrawal and death.** After 3 years of membership, a subscriber can withdraw 25% of their own contributions for specified reasons such as illness, disability, education, or marriage of children, purchasing property, or starting a new venture, up to 3 times during the tenure[5](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19). On the subscriber's death, the entire accumulated pension wealth (100%) is paid to the nominee or legal heir, with no annuity purchase required[4](https://pfrda.org.in/documents/33652/217954/NPS+All+Citizen+Model.pdf/8f46c71a-9f36-75ac-e821-237551dfb958?t=1753679966626).
## By the numbers
NPS has grown quickly on both dimensions. Over FY15 to FY25, subscribers grew at a compound annual rate of 9.5% while AUM grew at 37.3%[3](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219928&lang=1®=3). Two official figures for recent AUM differ by as-of date: ₹16.1 trillion (₹16.1 lakh crore) as of 31 December 2025 (Economic Survey data) and approximately ₹15.95 trillion (₹15.95 lakh crore) as on 31 March 2026[3](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219928&lang=1®=3) • [1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3). The central government segment alone held ₹3.65 trillion (₹3.65 lakh crore) as on 26 July 2026[8](https://sansad.in/getFile/lsapps/loksabhaquestions/annex/188/AU3636_4p95Uf.pdf).
**Fees are low and slab-based.** For the government sector, the PRAN opening charge is ₹18 (e-PRAN kit) or ₹40 (physical card), annual maintenance is ₹100, and transaction charges are zero[12](https://www.npscra.proteantech.in/download/Circular%20-%20Guidelines%20on%20Price%20Discovery%20Process%20for%20the%20charges%20of%20CRAs.pdf). Tier I annual maintenance is charged on corpus slabs: ₹100 for ₹100,000–200,000 (₹1–2 lakh), ₹150 for ₹200,000–1 million (₹2–10 lakh), ₹300 for ₹1 million–2.5 million (₹10–25 lakh), ₹400 for ₹2.5 million–5 million (₹25–50 lakh), and ₹500 above ₹5 million (₹50 lakh)[12](https://www.npscra.proteantech.in/download/Circular%20-%20Guidelines%20on%20Price%20Discovery%20Process%20for%20the%20charges%20of%20CRAs.pdf).
## How it compares with EPF, PPF, and mutual funds
NPS has no fixed interest rate; returns depend on market performance across equity, corporate bonds, and government securities, with long-term returns of 9%–12% depending on the asset mix[6](https://www.etmoney.com/learn/nps/epf-vs-nps/). Per that source, NPS equity schemes delivered a median return of 19.5% over the past 5 years, against 6.9% for corporate bond schemes and around 6.2% for government bond schemes[6](https://www.etmoney.com/learn/nps/epf-vs-nps/).
A modeled comparison assuming ₹10,000 monthly contributions puts EPF at 8.25% yielding about ₹20 million (₹2 crore), NPS at 10% yielding ₹27.2 million (₹2.72 crore), and equity mutual funds at 12% yielding ₹37.9 million (₹3.79 crore) at maturity[13](https://www.news18.com/business/savings-and-investments/epf-vs-nps-vs-mutual-funds-which-builds-a-stronger-retirement-corpus-ws-l-10017425.html). On tax, EPF is fully tax-free (EEE), while equity mutual fund gains face LTCG tax of 12.5% above ₹125,000 (₹1.25 lakh)[13](https://www.news18.com/business/savings-and-investments/epf-vs-nps-vs-mutual-funds-which-builds-a-stronger-retirement-corpus-ws-l-10017425.html).
## The Unified Pension Scheme, 2025
A committee under the then Finance Secretary was constituted to suggest modifications to NPS, and the resulting Unified Pension Scheme (UPS) was introduced with effect from 1 April 2025 for central government employees covered under NPS, with the objective of providing inflation-linked defined benefits[8](https://sansad.in/getFile/lsapps/loksabhaquestions/annex/188/AU3636_4p95Uf.pdf). PFRDA notified the operationalising regulations on 19 March 2025[7](https://constitutionofindia.in/wp-content/uploads/2025/03/Unified-Pension-Scheme-gazette-notification.pdf).
**UPS versus NPS in structure.** Under UPS the subscriber contributes 10% of basic pay plus dearness allowance to the individual PRAN, the government contributes a matching 10%, and an additional estimated 8.5% government contribution goes to a pool corpus; under NPS the government contributes a direct 14% to the individual account[7](https://constitutionofindia.in/wp-content/uploads/2025/03/Unified-Pension-Scheme-gazette-notification.pdf) • [1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3). UPS guarantees a minimum assured payout of ₹10,000 per month for eligible employees with at least 10 years of service, which is not available under NPS[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3). UPS also provides a lump sum at retirement of 10% of monthly emoluments for every completed six months of qualifying service[1](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3).
UPS retains NPS-style mechanics with different parameters: investment choices of 100% government securities (Scheme G), LC-25 with equity capped at 25%, or LC-50 with equity capped at 50%; partial withdrawals after a three-year lock-in, up to three times, capped at 25% of own contributions; and a lump-sum withdrawal of up to 60% of the individual corpus at superannuation, subject to proportionate reduction in the assured payout[7](https://constitutionofindia.in/wp-content/uploads/2025/03/Unified-Pension-Scheme-gazette-notification.pdf). An IARIW 2025 analysis found that NPS was inadequate for providing a pension comparable to OPS, while the increased contributions under UPS will enable adequacy[9](https://iariw.org/wp-content/uploads/2025/03/Sethia_Tokyo.pdf).
## References
1. [Press Information Bureau – NPS/UPS explainer](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258761&lang=1®=3)
2. [Government Responsibility (arXiv preprint on NPS adoption)](https://arxiv.org/pdf/2408.13200)
3. [Press Information Bureau – Economic Survey data on NPS/APY growth](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219928&lang=1®=3)
4. [PFRDA – NPS All Citizen Model Offer Document](https://pfrda.org.in/documents/33652/217954/NPS+All+Citizen+Model.pdf/8f46c71a-9f36-75ac-e821-237551dfb958?t=1753679966626)
5. [PFRDA FAQs – All Citizen Model (exits, withdrawals and tax)](https://www.pfrda.org.in/documents/33652/109556/NPS-All%2Bcitizen%2BModel.pdf/e84d109f-310c-64f8-c988-c6e7cb063b19)
6. [EPF vs NPS: Which is Better for Retirement Planning in India? (ET Money)](https://www.etmoney.com/learn/nps/epf-vs-nps/)
7. [PFRDA (Operationalisation of Unified Pension Scheme under NPS) Regulations, 2025 – Gazette Notification, 19 March 2025](https://constitutionofindia.in/wp-content/uploads/2025/03/Unified-Pension-Scheme-gazette-notification.pdf)
8. [Lok Sabha Unstarred Question AU3636 – Government reply on OPS restoration, NPS review and corpus](https://sansad.in/getFile/lsapps/loksabhaquestions/annex/188/AU3636_4p95Uf.pdf)
9. [IARIW 2025 paper on retirement income adequacy under NPS, OPS and UPS](https://iariw.org/wp-content/uploads/2025/03/Sethia_Tokyo.pdf)
10. [The way forward for India's National Pension (Sane, House of Finance workshop paper)](https://housefinance.dauphine.fr/fileadmin/mediatheque/houseoffinance/documents/international_pension_workshop/13th_workshop/Sane.pdf)
11. [The Role of National Pension System (NPS) in Retirement Planning: A Legal and Regulatory Analysis (IJRPR)](https://ijrpr.com/uploads/V7ISSUE6/IJRPR66603.pdf)
12. [CRA circular – Guidelines on Price Discovery Process for CRA charges](https://www.npscra.proteantech.in/download/Circular%20-%20Guidelines%20on%20Price%20Discovery%20Process%20for%20the%20charges%20of%20CRAs.pdf)
13. [EPF Vs NPS Vs Mutual Funds: Which Builds A Stronger Retirement Corpus (News18)](https://www.news18.com/business/savings-and-investments/epf-vs-nps-vs-mutual-funds-which-builds-a-stronger-retirement-corpus-ws-l-10017425.html)
14. [Should states avoid switching back to the old pension scheme? RBI economists think so (New Indian Express)](https://www.newindianexpress.com/web-only/2023/Sep/27/should-states-avoid-switching-back-to-the-old-pension-scheme-rbi-economists-think-so-2618733.html)
15. [Old Pension Scheme unsustainable for states: PFRDA Chairperson Sivasubramanian Ramann (Indian Express)](https://indianexpress.com/article/business/old-pension-scheme-unsustainable-for-states-concept-of-funded-pension-account-essential-pfrda-chairperson-sivasubramanian-ramann-10534217/)
16. [Don't revert to old pension system (The Hindu BusinessLine)](https://www.thehindubusinessline.com/opinion/dont-revert-to-old-pension-system/article67541364.ece)
17. [Retirement choice architecture: insights from India's National Pension System (Journal of Pension Economics & Finance)](https://www.cambridge.org/core/journals/journal-of-pension-economics-and-finance/article/retirement-choice-architecture-insights-from-indias-national-pension-system/B326C14A540CD5A4AF7D2EE7F0024999)
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*Topic: Encyclopedia › Society and history › Economics and business › Economics › Economic policy and stability › Fiscal policy and public economics › Social insurance and transfer economics*
*Initially written Sep 17, 2026 · Reviewed: Sep 17, 2026; Sep 30, 2026; Oct 10, 2026 · Edited: Sep 17, 2026; Sep 30, 2026; Oct 10, 2026; Oct 11, 2026; Oct 15, 2026; Oct 21, 2026 · Last review: Oct 10, 2026*
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