National Pension Scheme - Complete Details on Benefits, Returns & Eligibility

A recent study found that over 80% of urban Indians fear running out of money in retirement. If you’ve spent decades supporting family and work, you deserve security in your later years. 

The National Pension Scheme (NPS) is a government-backed, market-linked retirement plan that can help ensure a steady income and peace of mind when you stop working.

What is NPS?

The National Pension Scheme, or NPS, is a government-backed plan that helps you set aside savings today so you can look forward to a more secure retirement. It is regulated by the Pension Fund Regulatory; Development Authority (PFRDA). 

The National Pension Scheme was first introduced for new government employees, but today it’s open to all Indian citizens, including NRIs between the ages of 18 and 70.

When you invest in NPS, your contributions are pooled together and managed by professionals. These funds are invested across different options like equities, corporate bonds, and government securities to help your savings grow over time.

To make it simple, NPS offers you two types of accounts, each designed to support your retirement goals in different ways.

• Tier I or Retirement Account:

Your permanent pension account. You can start with just ₹500, and add as little as ₹1000 annually.  You can withdraw the amount after you retire. But till then, you can use its tax benefits.

• Tier II or Voluntary Account:

You can open with ₹250 and have no minimum yearly deposit. You can withdraw from a Tier II account anytime, but these contributions do not have any tax benefits.

NPS Scheme Details to Help You Plan Better

With a better understanding of NPS schemes, you can make a better decision about investing your money. So, now let’s take a look at this table that will help you to give a better clarity. 

Why NPS Benefits Can Make a Big Difference

All of us invest money so that we can have good returns in future, and this feeling gives you the peace of mind and a better clarity on where you are investing your money. NPS has many other benefits apart from just giving good returns. So, you ready to understand those benefits in detail: 

1. Tax Savings: With a Tier I account, you can claim tax deductions of up to ₹1.5 lakh under Section 80CCD(1) (part of 80C) and an extra ₹50,000 under 80CCD(1B). If your employer contributes to your NPS, that amount (up to 10–14% of salary) is also tax-deductible under Section 80CCD(2).
2. Market-Linked Returns: Your money is invested in a mix of equity and debt funds. Historically, NPS equity funds have earned around 14–15% per year, while debt funds have given 8–9%. These national pension scheme returns are usually higher than what fixed deposits offer over the long term.
3. Flexible Portfolio: You decide your NPS investment mix. You can invest up to 75% in equities (Tier I limit) for higher growth, choose your fund manager, and even change your allocation when you want.
4. Low Cost: NPS charges very low management fees, so more of your money stays invested and grows.
5. Guaranteed Pension: When you retire, you can take up to 60% of your savings as a lump sum (mostly tax-free). The remaining 40% or more is used to buy an annuity that pays you a monthly pension for life. And the annuity is taxable each year under your applicable income tax slab.
6. Portability & Security: If you change jobs or move cities, your NPS account moves with you. The money is held in your name by the NPS Trust, and the scheme is closely monitored for safety and transparency.

For many, tax savings top the list of national pension scheme benefits. But there’s more, like partial withdrawals for education or medical needs, which make life easier when surprises come up. Put together, these NPS benefits, tax relief, steady growth, and a lifelong pension, give you both peace of mind and a solid retirement cushion

NPS Investment Options

You can allocate your NPS contributions among four asset classes:

• Equity (E): Invests in stocks (higher growth potential, more risk).
• Corporate Debt (C): Invests in corporate bonds (moderate risk/return).
• Government Securities (G): Invests in government bonds (low risk, stable return).
• Alternative (A): Invests up to 5% in assets like REITs/InvITs.

Under Active Choice, you pick fixed percentages for each class (e.g. 50% E, 30% G, 20% C). Alternatively, the Auto (Lifecycle) Choice automatically shifts allocations as you age (reducing equity exposure). This means each NPS investment plan can be tailored to match your risk profile over time.

National Pension Scheme Returns

NPS returns are market-linked. Historical averages across fund managers are roughly:

• Equity funds: ~14.5% p.a. (since inception)
• Corporate bond funds: ~9% p.a.
• Government bond funds: ~9% p.a.

A  balanced NPS portfolio (mix of equity and debt) might target ~8–12% p.a. over decades, which is higher than many fixed-income schemes. After recent tax reforms, your entire NPS corpus (lump sum and annuity) is now tax-free at retirement, effectively boosting your realised returns. 

Who Should Invest in NPS?

NPS is well-suited for anyone aiming to bridge the post-retirement income gap. If you’re 30–40 and concerned about retirement, starting NPS now can significantly increase your savings. 

Self-employed professionals also benefit, since NPS enforces a disciplined pension habit (plus tax savings). Even younger earners (Gen Z) can use NPS to build wealth early on by leveraging the long-term power of equity.  

Your Next Step Towards a Secure Retirement

By now, you should have a good picture of how NPS works. The national pension scheme details and benefits we’ve covered show that it can be a solid base for your retirement. 

With regular NPS investment and the potential for good returns, you can build a pension fund that supports a comfortable life. 

Take some time to go through the NPS scheme details so you know exactly what to expect. Those returns we mentioned earlier can help you picture the size of your retirement fund. 

You’ve spent years looking after others, now’s the moment to make sure you’re looked after too. 

Disclaimer: The information provided is intended for general informational purposes only. For personalised recommendations, please consult a certified insurance professional.