Definition
National Pension System (NPS)
The National Pension System is a regulated, market-linked retirement savings scheme in which contributions are invested and converted partly into an annuity at retirement.
NPS lets subscribers build a retirement corpus through regular contributions invested across equity, corporate bonds and government securities by professional fund managers, regulated by the PFRDA. At retirement, a portion can be withdrawn as a lump sum and the rest must buy an annuity for a regular pension.
NPS offers additional tax deductions over and above other limits, making it popular for retirement planning. Its low-cost, portable structure and choice of investment mix distinguish it from older defined-benefit pensions, shifting investment risk to the subscriber.
Related terms
- PFRDAPFRDA is the Pension Fund Regulatory and Development Authority, which regulates the National Pension System and promotes old-age income security.
- 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.
- Section 115BAC New Tax RegimeThe new tax regime offers lower income-tax slab rates in exchange for forgoing most exemptions and deductions, available as an optional alternative to the old regime.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.