NPS will not provide a pension! You need to buy one yourself!

Published: January 14, 2016 at 9:25 am

Last Updated on

Here are some less-understood facts about the National Pension Scheme (NPS).

  • National Pension Scheme comes with no guarantees of returns.
  • NPS is a mutual fund and carries with it all the risks associated with any old mutual fund. Read more: NPS investments are mutual fund investments!
  • The aim of NPS is to generate a corpus and not provide a pension.
    • When it is time to withdraw (after age 60), the subscriber should take the corpus generated (40% minimum) and buy an annuity (pension) from any of the designated annuity providers like LIC, SBI, ICICI, HDFC and Star Union. Details here: Annuity Service Providers
    • The annuity provider will offer a pension at the annuity rates applicable at the time of purchase. There is no special annuity rate for the NPS, or at least there need not be (and is not at the time of writing)!
    •  Anyone with a big enough sum can purchase these annuities from the insurers. An NPS account is not necessary! This is point the title conveys. It is not NPS that provides the Pension. The annuity provider does – which they would for any individual whether they are NPS subscribers or not. NPS is only a means to obtain a retirement nest egg. There are other ways to obtain a much healthier corpus with a lot more efficiency.
  • Can I open an account to invest only 50,000 under 80CC1(B) and invest elsewhere for 80C deductions? Yes, as long as you open, the govt. will be happy!
  • Where can I find information about the returns generated by various pension fund managers?  Here: Return of NPS Schemes 

NPS Scheme Returns as on 27 Sep, 2019

With inputs from Facebook group, Asan Ideas for Wealth.

Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

Update 2:  NPS: Partial Withdrawal Rules 2019 are just awful! Beware.

Do share if you found this useful
Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

About the Author

M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Linkedin
Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. For speaking engagements write to pattu [at] freefincal [dot] com

About freefincal & Content Policy

Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site.
Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)

Connect with us on social media

Our Publications


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)  

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Comment Policy

Your thoughts are the driving force behind our work. We welcome criticism and differing opinions.Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

7 Comments

  1. Prof. Pattu,
    My friend is a TN state government employee contributing towards (Contributory Pension Scheme) CPS. Is CPS is same as NPS? how to know equity/debt percentage of CPS portfolio and any ways to change it as per his wishes?
    TIA
    Rajesh

    1. If s/he joined after 2004 it is probably NPS. Else same as EPF. Gvot employees cannot change equity or debt allocation. Equity allocation is fixed at 15% as of now.

    2. No…TN implemented scheme before 2004 from 1-04-2003 for its employees …rules are similiar to NPS..but not yet implemented NPS architecture under PFRDA

  2. LTCG for equity/equity fund is nil. At the time of withdrawal, NPS is treated as debt fund and taxed accordingly. Am I right?

Leave a Reply

Your email address will not be published. Required fields are marked *