The National Pension System (NPS), earlier known as the New Pension Scheme, is a social security initiative by the Government of India.
It is for people working in public, private, and unorganised sectors and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
It is a ‘defined contribution scheme’ wherein employees contribute 10% of their basic salary and the Centre contributes 14%.
The Old Pension Scheme (OPS) is a ‘defined benefit scheme’ as the employees are guaranteed 50% of their last drawn salary as a lifelong pension, subject to adjustments as per the pay commission’s recommendations.
At the retirement age, 60% of the fund invested and returns earned over the years are returned to the subscriber as a lump-sum payment.
The remaining amount is used to purchase an annuity from a pension plan provider.
NPS replaced the old pension scheme in 2004 and is mandatory for government employees.
It is voluntary for private salaried individuals, corporates, NRI/OCIs and employees of autonomous bodies, small businessmen, and others.
NPS offers various benefits such as market-linked returns, flexible investment options, low-fund management charges, low exit load and tax deductions.