Eligibility

The Central Government introduced the National Pension System (NPS) effective from January 1, 2004 (excluding armed forces). This system was established to provide a sustainable and efficient pension scheme for government employees. Under NPS, employees contribute a portion of their salary towards their pension, which is then invested in various financial instruments to generate returns over time. This ensures a steady income post-retirement, promoting financial security and independence.
Ministry of Finance, vide Office Memorandum No 1 (2)/E.V./2007 dated June 30, 2009, has stated that these organisations may also be permitted to shift to a defined contribution pension scheme i.e. NPS in respect of employees who have joined before January 01, 2004. 
 

Contribution Details

The  National Pension System (NPS) under the Pension Fund Regulatory and Development Authority (PFRDA) is designed to provide a sustainable and secure retirement plan for employees. One of the key features of the NPS is the monthly contribution requirement.

Monthly Contribution: Employees are required to contribute 10% of their salary and dearness allowance (DA) each month. This contribution is automatically deducted from the employee's salary. The Government matches this contribution, effectively doubling the amount saved each month. This matching contribution by the Government underscores its commitment to ensuring financial security for employees’ post-retirement.

Contribution Deposit: All contributions, both from the employee and the Government, are deposited into the Tier I account of the Permanent Retirement Account Number (PRAN). The Tier I account is a non-withdrawable account until retirement, designed to accumulate savings over the long term. This account ensures that the contributions are securely invested and grow over time, providing a substantial corpus upon retirement.

Investment and Growth: The contributions deposited in the Tier I account are invested in a mix of asset classes, including government securities, corporate bonds, and equities. The investment strategy is designed to balance risk and return, ensuring steady growth of the retirement corpus. The PFRDA oversees the investment process, ensuring transparency and security.

Regulatory Framework: The NPS operates under a robust regulatory framework established by the PFRDA. This framework includes various circulars and gazette notifications that provide detailed guidelines on the functioning of the NPS. One such important document is the Gazette Notifications F No. 5/7/2003-ECB & PR dated 22-12-2003. This notification outlines the rules and regulations governing the contributions and investments under the NPS.

Investment Choices & Patterns

At present, there is only one default scheme for Tier I for Government employees. In the default scheme, the contribution is allocated to three PFMs, viz. SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited in a predefined proportion.

With effect from 10.06.2015, each of the PFMs will invest the funds in the proportion of up to 50% in Government Securities and Related Investments, up to 45% in Debt Instruments and Related Investments, up to 5% in Short-term Debt Instruments and Related Investments, up to 15% in Equities and Related Investments and up to 5% in Asset Backed, Trust Structured and Miscellaneous Investments.

Refer to Circulars:

• PFRDA Circular No. PFRDA/2015/16/PFM/7 dated 03rd June 2015

Withdrawal & Exit

For details on Withdrawal & Exit from NPS click here

Revised FAQs for Central Government Sector (CG) and Central Autonomous Bodies (CABs)