Definition
National Pension System
The National Pension System is a regulated, market-linked retirement savings scheme where subscribers accumulate a corpus and annuitise part of it at exit.
Regulated by PFRDA, NPS lets subscribers invest across equity, corporate debt and government securities through pension fund managers, building a corpus until retirement. At exit (typically age 60), a portion can be withdrawn as a tax-free lump sum while the rest must buy an annuity for lifelong income.
NPS is relevant to insurance because the mandatory annuitisation links it directly to life insurers, who provide the annuity. It offers additional tax deduction beyond the standard limit, making it a popular voluntary retirement vehicle alongside EPF and PPF.
Related terms
- Vesting AgeVesting age is the age at which a deferred pension or annuity plan matures and the policyholder begins receiving regular income.
- Immediate AnnuityAn immediate annuity is a pension product where the buyer pays a lump sum and starts receiving regular income almost immediately, typically from the next payout cycle.
- Atal Pension YojanaAtal Pension Yojana is a government-backed pension scheme for workers, mainly in the unorganised sector, offering a guaranteed minimum pension after age sixty.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.