Your all-round guide to NPS

The National Pension System (NPS) is a defined-contribution retirement savings scheme. Introduced initially for new Central government employees in 2004, it was extended to all citizens in 2009. NPS has evolved into a low-cost, market-linked investment platform that combines elements of mutual funds, provident funds and traditional pension products.

Like mutual funds, NPS has undergone several changes over the last few years. The regulator, the Pension Fund Regulatory and Development Authority (PFRDA), has steadily refined the product to transform from a basic pension accumulation vehicle into a comprehensive retirement solution.

Recent initiatives such as NPS Vatsalya for minors, Multi Scheme Framework (MSF) that allows subscribers to maintain multiple investment baskets, and the Retirement Income Scheme (RIS), which enables phased withdrawals after retirement, reflect this evolving approach.

And yet, NPS remains one of the least-understood financial products among retail investors. While mutual fund folios rose 90 per cent to 27.5 crore in the three years to April 2026, the subscriber base under the NPS All Citizen model grew 71 per cent to 50.7 lakh during the same period.

For investors beginning their retirement journey, understanding how NPS works, how it invests, the returns it has generated and the choices available at retirement is essential before deciding whether it deserves a place in their portfolio.

Here we focus more on the non-government subscribers including All Citizen and corporate models.

Individuals aged between 18 and 85 can join the NPS system. Broadly, the NPS journey has two stages: The accumulation phase and the decumulation (the process of gradua withdrawal) phase.

During the accumulation phase, subscribers make periodic contributions through their working years, either monthly, quarterly, half-yearly or annually. These contributions are invested in market-linked instruments and managed by professional pension fund managers, enabling the retirement corpus to grow over time.

The decumulation phase begins when a subscriber exits the system. While exit is generally permitted at age 60, the rules vary across subscriber categories. A portion of the accumulated corpus must be used to purchase an annuity that provides a regular pension. Subscribers may also defer lump-sum withdrawals and annuity purchase until the age of 85, as per latest norms. An NPS account remains active until the subscriber attains 85 years of age, after which it is closed.

NPS contributions are invested through professional pension fund managers, with subscribers having the flexibility to choose both the fund manager and the asset allocation. The pension fund management industry currently comprises 10 players: SBI Pension, UTI Pension, LIC Pension, HDFC Pension, ICICI Prudential Pension, Kotak Pension, Aditya Birla SL Pension, Axis Pension, Tata Pension and Max Life Pension Fund.

Every subscriber is required to open a Tier-I account, which serves as the primary retirement account and offers tax benefits. Withdrawals from this account are restricted. Subscribers may also open a Tier-II account, which functions as a voluntary savings account with greater liquidity but limited tax advantages.

Investments are allocated across asset classes that are now classified as common schemes such as equity (E), corporate debt (C) and government securities (G). Alternate Assets (A) was discontinued effective December 25, 2025. Pension managers offer these asset classes separately in both Tier-I and Tier-II accounts.

Subscribers under All Citizen and corporate models can choose between two investment approaches. Under Active Choice, you can plan and choose on how your contribution is to be invested. You can choose the pension manager, the schemes as well as the percentage allocation in the asset classes. However, allocation to E is capped at 75 per cent, while you can allocate up to 100 per cent into C and G. This option suits those who are comfortable managing their own asset allocation.

Auto Choice in NPS is a lifecycle-based investment option where asset allocation is automatically adjusted based on age. Equity exposure is higher when the investor is young and gradually reduces as retirement approaches. Within Auto Choice, investors under All Citizen Model can select from four lifecycle variants based on risk appetite. These include Life Cycle 75 (High), which begins with higher equity exposure; Life Cycle 50 (Moderate); Life Cycle 25 (Low) with a conservative allocation; and a newer Life Cycle Aggressive option, which allows relatively higher equity exposure over a longer period. These funds follow a predefined glide path, automatically rebalancing equity and debt over time, making Auto Choice suitable for investors seeking a hands-off, disciplined approach to retirement investing.

An NPS account can be opened online through the eNPS portals operated by Protean, KFintech and CAMS, as well as through banks and fintech platforms that act as Points of Presence (PoPs).

Subscribers can open an account using Aadhaar, PAN or DigiLocker authentication. Aadhaar-based digital onboarding has made account opening largely paperless and can often be completed within minutes.

Alternatively, one can opt for the offline route through banks and authorised PoPs, where forms are submitted and verification is done physically. Link for registration portals: https://npstrust.org.in/open-an-nps-account. Minimum contribution is ₹250 at the time of onboarding. If you don’t contribute at least ₹1,000 a financial year to your NPS Tier-I account, it can become inactive and stop accepting transactions.

Subscribers can track their NPS investments by logging into the CRA portal or mobile app for real-time account details, and they also receive annual transaction statements and SMS/email updates on contributions and NAV changes.

Before opening the account, investors should decide on three key aspects: The pension fund manager, the investment option (Active Choice or Auto Choice) and nominee details. These can be changed later, but having clarity upfront makes the process smoother.

The PFRDA 2025 framework for non-government subscribers, including All Citizen Model, marks a clear shift toward flexibility while retaining the core retirement discipline of NPS. A subscriber can opt for a normal exit after attaining 60 years, superannuation, or completing at least 15 years of subscription, effectively introducing a vesting-based exit alongside age-based exit. At this stage, only 20 per cent of the accumulated pension wealth is mandatorily annuitised, with the balance 80 per cent available as lump-sum or structured withdrawals, offering significantly higher liquidity. However, for Central government employees, normal exit is linked to retirement from service or attaining the age of 60, wherein the 40 per cent of the accumulated pension wealth is mandatorily annuitised.

Subscribers can defer both withdrawal and annuity purchase until age 85, without making fresh contributions, allowing the remaining corpus to continue participating in market-linked growth.

Premature (voluntary) exit in NPS is allowed before meeting normal exit conditions, but with restrictions. At least 80 per cent of the corpus must be annuitised, with only 20 per cent allowed as lump-sum, ensuring retirement income discipline. Full withdrawal is permitted for small balances of ₹5 lakh or less. On death, the entire corpus is paid to nominees or legal heirs, with no mandatory annuity, though they may opt for annuity or structured payouts.

The annuity component of NPS is designed to provide a steady post-retirement income stream, ensuring retirees do not deplete their savings too quickly. However, it also limits flexibility.

Annuity Service Providers (ASPs) are life insurers managing annuity contributions and pay regular pensions to subscribers after retirement or resignation.

Currently, 15 ASPs, including LIC, ICI...