National Pension System (NPS)

The NPS was introduced for central government employees in 2004 and opened to all Indian citizens in 2009. Subscribers choose a pension fund manager and an investment mix, either selecting their own allocation or using a life-cycle option that gradually reduces equity exposure with age.

There are two account types. A Tier I account is the main retirement account, with restrictions on withdrawals before retirement. A Tier II account is an optional, more flexible savings account. Contributions to Tier I can qualify for tax deductions, including an extra deduction specific to the NPS under the older tax regime, and employer contributions may also receive tax benefits.

For example, a salaried worker might contribute monthly to an NPS Tier I account, with their employer also contributing, building a retirement fund invested partly in equities.

At retirement, subscribers can withdraw part of the accumulated amount as a lump sum, and the rules require part to be used to buy an annuity that provides regular income. The regulator has revised exit and withdrawal rules over time, so current terms should be checked. Fees are generally low compared with many other investment products.