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August 27, 2024 12:40
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The New Pension Scheme (NPS) is introduced to replace the Old Pension Scheme. Learn more about the New Pension Scheme (NPS) here.
The New Pension System (NPS) is also known as the National Pension System. It was introduced by the Central Government and was mandatory for all new recruits to the Central Government service. This scheme was introduced on January 1, 2004, replacing the Old Pension Scheme (OPS). Continue reading to learn more about the New Pension Scheme from here.
The National Pension System was first floated in January 2004, the National Pension Scheme (NPS) was initially established as a retirement plan exclusively for government employees. However, in 2009, it was expanded to cover all sectors. The National Pension System (NPS) is a social security initiative launched by the Central Government. It is available to employees across the public, private, and even unorganised sectors, with the exception of those in the armed forces. The New Pension Scheme (NPS) will work on a defined contribution basis and will also have two tiers – Tier I and Tier II.
Tier I is mandatory for government employees joining after January 1, 2004. They must contribute 10% of their Basic Pay, Dearness Pay (DP), and Dearness Allowance (DA) each month, and the government matches this amount. The money in Tier I is locked until retirement.
Tier II is optional and allows employees to contribute extra money that can be withdrawn anytime. However, during certain periods, voluntary contributions to Tier II might not be allowed, and no deductions will be made from salaries for this tier.
The National Pension System represents a shift from a defined benefit system to a defined contribution system, aiming to create a sustainable pension model in India. Unlike the OPS, which provides a defined pension based on the last drawn salary, the NPS is market-linked, with the pension amount depending on the contributions made and the returns generated by the invested corpus. Check out the Key Features of the NPS scheme (NPS):
Mandatory for New Recruits: NPS became mandatory for all central government employees (except the armed forces) who joined service on or after January 1, 2004. It is now governed by the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013.
Permanent Retirement Account Number (PRAN): Every employee registered under the NPS is allotted a PRAN, which is a unique identifier that remains with the individual throughout their life.
Contributions to NPS Tier I accounts are eligible for tax deduction under Section 80C of the Income Tax Act. Additionally, investments in NPS Tier II accounts also qualify for tax benefits under Section 80C, subject to certain conditions. Check out all the National Pension System (NPS) Benefits here:
For Employees:
For Self-Employed:
The NPS continues to evolve with the government introducing changes to make the scheme more beneficial for employees. In 2024, the following updates are notable:
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