The National Pension System (NPS) is a government-backed retirement savings scheme aimed to help people build funds for retirement. Under NPS, both the individual and their employer (if enrolled under the corporate model) can contribute regularly to a pension account during the subscriber’s working years.NPS works on a defined contribution model, which means the benefit you receive at retirement isn’t fixed. Instead, it depends on the employee and employer’s contributions, time duration of investment and the performance of your investments. The longer the money is invested, and the lower the charges deducted, the larger your final retirement corpus is likely to be.
Every NPS subscriber is issued a Permanent Retirement Account Number (PRAN), a unique 12-digit number that serves as a personal identifier within the NPS system.
When an employee leaves the job, he/she can shift the corpus to a new employer with the same PRAN a/c if the new employer is already a registered entity under NPS. But if not, then the employee can continue the PRAN a/c under All Citizen Model. And in case if any employee resigns or leaves the organization within 5 years, the employer contributions cannot be forfeited under NPS.
What is the NPS Corporate Model?
According to the PFRDA website, NPS Corporate Model is for organizations that want to support their workforce with a long-term savings plan for retirement—without the hassle of running their own pension fund. The Corporate NPS model is open to companies, public sector enterprises, partnerships, LLPs, co-operative societies, trusts, proprietorships, and other government-incorporated bodies.
What are the prominent benefits of the Corporate NPS Model for Employees?
Employees enrolled in the Corporate NPS model also have several advantages, some of which are listed below:Flexible investment choices: Employees can choose from a range of fund managers and investment options, including equity, corporate bonds, and government securities. You can actively manage your portfolio or go for the Auto Choice option, which adjusts your investments based on your age.Portability across jobs and locations: A major advantage of NPS is that it’s portable. The account stays with the employee across job changes, sectors, and geographies. In addition, Tier II accounts allow for voluntary savings with flexible withdrawal options, though they don’t offer tax benefits.
- Nationwide operations: Your NPS account can be accessed and operated from anywhere in the country, no matter where you work or live. This means whether you’re in Delhi, Mumbai, or a remote location, you can continue to manage your NPS accounts.
- Easy job transitions: Subscribers can easily transfer their NPS account when changing jobs. Whether you switch from one corporate employer to another, move from the private sector to the government sector (or vice versa), or switch between the All Citizen Model and Corporate Model, your account remains intact. For example, if you move from a private company to a Central Government job, you can continue contributing to the same NPS account without any disruptions.
- Transfers between POPs and POP-SPs: You can also move your NPS account between Points of Presence (POPs) which is the interface between the Corporate / subscribers and the NPS architecture and POP Service Providers (POP-SPs) which are the designated branches of registered POPs to extend the reach of NPS. This allows you to choose from different providers or switch to another service provider without affecting your account.
- Self-employed subscribers: If you leave your employment to become self-employed, you can continue contributing to your NPS account on your own. Similarly, if you re-enter employment, both you and your new employer can resume contributions, ensuring continuous retirement savings.
- Universal contribution acceptance: Subscribers can make contributions to NPS from any registered POP/POP-SP, even if they are not directly registered with that provider.
Dual tax benefits: Both the employee’s and the employer’s contributions are eligible for tax exemptions under the Income Tax Act. Employees can claim deductions up to Rs 1.5 lakh under Section 80CCD(1) and an additional Rs 50,000 under Section 80CCD(1B) in the old tax regime. Moreover, the employer’s contribution up to 10% of salary is also tax-free for the employee under Section 80CCD(2) in the old tax regime and employer’s contribution up to 14% of the salary of the employee is tax free in the New Tax Regime.
Stay invested even after retirement: Employees can choose to defer withdrawal even after retirement, allowing the corpus to grow further until they’re ready to withdraw.
What are the minimum contributions to Tier-I and Tier-II accounts?
Here is a table which details the minimum contributions to Tier-I and Tier-II accounts for NPS Corporate Model
| Corporate model | Tier -I | Tier -II |
| Minimum Contribution at the time of account opening | Rs. 500 | Rs. 1000 |
| Minimum amount per contribution | Rs. 500 | Rs. 250 |
| Minimum total contribution in the year | Rs. 1000 | – |
| Minimum frequency of contributions | 1 per year | – |
NPS exit and withdrawal rules
At retirement (age 60), subscribers can withdraw 60% of the corpus tax-free, while the remaining 40% must be used to buy an annuity. Partial withdrawals before retirement are allowed under specific conditions like medical emergencies or education. Early exit (before 60) is possible, but comes with stricter rules—only 20% can be withdrawn as a lump sum, and 80% must be annuitized. Source Link
