Guides / NPS Explained: How the National Pension System Works

NPS Explained: How the National Pension System Works

The National Pension System (NPS) is a market-linked retirement scheme. You invest regularly, and at retirement you receive a lump sum and a pension.

How it works

1. You invest every month during your working years.
2. The money is invested in a mix of equity, corporate bonds and government securities.
3. At retirement (age 60), you take part of the corpus as a lump sum.
4. The rest buys an annuity that pays you a monthly pension.

Example

₹10,000 a month from age 30 to 60, assuming 10% a year, with 40% of the corpus used for an annuity at 6%.

Try your own numbers in the NPS Calculator.

Things to know

• Returns are not guaranteed. They depend on your asset mix and the market.
• The minimum share that must go to an annuity, and the withdrawal rules, have changed over time. Check the latest rules from PFRDA.
• Employee and employer contributions can give tax benefits. The limits depend on the regime, so check the current rules.
• Annuity income is generally taxable.