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Everything You Need To Know About National Pension System

Published On Feb 26, 2022 11:00 AM By InsuranceDekho

When people think of retirement, they think of vacation, beach resorts, leisurely days, meeting up with friends, and so on. All of these objectives are attainable if one works hard enough. Retirement, unlike most other financial elements of life, is unique. Retirement is defined as a period in which people will not have any adequate return and do not work to make money. This implies that from the day you quit working, you must have wisely invested sufficient money to last the rest of your life.
When you think about retirement, pictures of vacation, beach resorts, leisurely days, catching up with friends, and other activities come to mind. All of these goals may be achieved if one works hard enough. Retirement is unique in comparison to many other financial elements of life. When you retire, you are no longer earning an active income; you are no longer working to make money. This implies that when you quit working, you must have enough money saved and invested to last the rest of your life. To get to know more about the National Pension System, read on.

Everything You Need To Know About National Pension System

What Are The Types Of NPS Accounts That A Person Can Open Under The National Pension System?

Following are the types of accounts that a can open under the National Pension System -

Tier 1 Account

A Tier I account is a permanent retirement account with really no withdrawals. This has a lock-in term which extended till the member hit the age of 60 prior to 2011. The PFRDA, the regulatory body, did, however, make a few modifications in 2011. The relevant personnel would've been entitled for early retirement from either the army after 15 years of service, as according to their proposed rules.

Premature withdrawals are treated as reimbursable advances, which is a rare occurrence. Following 25 years of service, an individual can receive equal to 50% of the entire contribution. Individuals are able to use these withdrawals to aid them in a variety of urgent financial support, such as acute illness.

Tier 2 Account

Tier 2 Account holders have the option to leave an endless supply of money from respective accounts. It functions similarly to a savings account. The main difference is that withdrawing funds from this account is much more difficult than withdrawing funds from a savings account.

What Are The Benefits Under The National Pension Scheme?

Following are some of the listed benefits under the National Pension Scheme -


The NPS is split between stocks and bonds (this may not offer guaranteed returns). The NPS, on the other hand, gives much superior returns to insured individuals than traditional tax-saving investments such as the PPF.
This programme has been in place for more than a decade and has generated annualised returns of 8% to 10%. If an insured person is unsatisfied with the fund's management, the NPS allows them to change their fund manager.

Risk Assessment

The National Pension Scheme currently offers a range of equity investment limits ranging from 75% to 50%. For government personnel, the cap is set at 50%. The equity component of an insured individual's portfolio will be lowered by 2.5 percent every year in the authorised range beginning the year he or she turns 50.

The threshold for shareholders over through the age of 60, on either hand, is set around 50%. This shields the funds against price volatility by balancing the risk-reward balance in the best interests of investors.

The NPS offers a higher earning potential than other fixed-income programmes.

Withdrawal Rules After 60

Contrary to widespread belief, an insured person might withdraw their whole NPS account balance after retirement. A person should set aside a portion of 40% of their funds to get a monthly pension from a PFRDA-registered insurance company.

The remaining 60% is now tax-exempt. The entire NPS withdrawal monies are tax-free, as of the most recent policy declaration.


Individuals may consider joining the NPS plan if the benefits listed above meet their risk profile and investing goals. There are various mutual funds which cater to investors from all walks of life if such an individual wants more equity exposure.

You may also like: National Pension Scheme Vs Atal Pension Yojana

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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