Why National Pension System (NPS) is a Core Retirement Pillar
NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is one of the lowest-cost investment vehicles in the world, with fund management charges capped under 0.09%. Subscribers can choose their asset allocation across Equities (E), Corporate Debt (C), Government Securities (G), and Alternative Assets (A).
The 60:40 Retirement Withdrawal Framework
Upon attaining 60 years of age, you are entitled to withdraw up to 60% of your total corpus tax-free as a lump sum under Section 10(12A). The remaining 40% minimum must be utilized to purchase an annuity from a PFRDA-empanelled life insurance company to provide a guaranteed pension for life.
Frequently Asked Questions
Can I withdraw 100% of my NPS corpus without buying an annuity?
If your accumulated total NPS corpus at retirement is less than or equal to ₹5,00,000, you have the option to withdraw 100% of the corpus as a lump sum without any mandatory annuity requirement.
What is the difference between NPS Tier-1 and Tier-2 accounts?
Tier-1 is the primary retirement account with tax benefits and lock-in until age 60. Tier-2 is a voluntary savings facility with zero lock-in and complete liquidity, but without any tax deductions.
Is the monthly pension from the annuity taxable?
Yes. While the 60% lump sum is 100% tax-exempt, the monthly annuity payouts are treated as regular income and taxed according to your applicable income tax slabs in retirement.