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National Pension Scheme

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National Pension Scheme (NPS) is a defined contribution based pension system launched by Government of India with effect from 1 January, 2004. Like most other developing countries, India does not have a universal social security system to protect the elderly against economic deprivation. As a first step towards instituting pension reforms, Government of India moved from a defined benefit pension to a defined contribution based pension system. Apart from offering wide gamut of investment options to employees, this scheme would help government of India to reduce its pension liabilities. Unlike existing pension fund of Government of India that offered assured benefits, NPS has defined contribution and individuals can decide where to invest their money. The scheme is structured into two tiers:


  • Tier-I account: This NPS account doesn’t allow premature withdrawal and is available from 1 May, 2009
  • Tier-II account: The tier-II NPS account permits withdrawal, however is likely to be functional by about 2009 end. The notification from the regulator Pension Fund Regulatory and Development Authority (PFRDA) is expected shortly.

Since 1 April, 2008, the pension contributions of Central Government employees covered by the New Pension System (NPS) are being invested by professional Pension Fund Managers in line with investment guidelines of Government applicable to non-Government Provident Funds. A majority of State Governments have also shifted to the defined contribution based new pension system from varying dates. 22 State/UT Governments have notified the NPS for their new employees. Of these, 6 states have already signed agreements with the intermediaries of the NPS architecture appointed by PFRDA for carrying forward the implementation of the New Pension System. The other States are in the process of finalization of documentation.

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