How NPS builds your pension
The National Pension System is a market-linked retirement account regulated by PFRDA. Your contributions are invested in a mix of equity, corporate bonds and government securities that you choose (active choice) or that shifts automatically with age (auto choice). At 60, part of the corpus must buy an annuity, an insurance product that pays you a monthly pension for life; the rest can be withdrawn.
Worked example
Corpus = SIP future value until age 60
Monthly pension = corpus × annuity share × annuity rate ÷ 12Exit rules at 60
PFRDA revised the exit rules in December 2025. For non-government subscribers, at least 20% of the corpus must now buy an annuity, and up to 80% can be withdrawn as a lump sum. If the total corpus is ₹8 lakh or less, you can withdraw all of it. Government employees must still use at least 40% for an annuity. Check the latest PFRDA circular before you exit, as details and tax treatment of the larger lump sum may change.
Tax benefits
- Old regime: your contributions qualify for the ₹1.5 lakh investment deduction, plus an extra ₹50,000 deduction only for NPS.
- Both regimes: your employer's contribution to NPS is deductible (up to 14% of basic salary in the new regime), which makes corporate NPS useful even for new-regime taxpayers.
- Pension: the monthly annuity income is taxable at your slab rate.
NPS compared with other retirement options
NPS has very low fund management charges and some equity exposure, but money is locked until 60 and part must go into an annuity, whose rates are fixed when you buy it. Many people combine it with EPF, PPF and equity SIPs. To size the whole plan, use the retirement calculator.
Frequently asked questions
How much pension will I get from NPS?
It depends on your corpus, the share used for the annuity and the annuity rate when you retire. The calculator shows an estimate; annuity rates of 6–7% are typical today.
Can I withdraw NPS before 60?
Partial withdrawals for specific needs are allowed after three years, and premature exit is possible with a larger compulsory annuity. Check PFRDA's current rules.
Is NPS return guaranteed?
No. NPS is market-linked. Equity-heavy choices have historically returned more but fluctuate more.