Contributory Pension Scheme (NPS)

Defined contributory pension scheme


Contributory pension schemes give financial stability and security in the course of old age i.e. when people do not have a steady source of earnings. Retirement plans ensure that individuals live with their pride and thus without negotiating on the standard of living throughout advancing years. The Defined Contributory pension scheme offers a chance to invest as well as accumulate savings and thus get a lump sum quantity as the regular earnings through the annuity plan on your retirement.

As indicated by the United Nations Population Division World’s future is relied upon to arrive at 75 years by 2050 from the present degree of 65 years. Better well-being and sanitation conditions in India have expanded life expectancy. In this manner, the increasing typical cost for basic items, swelling, and future make retirement arranging a fundamental piece of the present life. To give standardized savings to more natives the Government of India has begun the National Pension System or Contributory Pension Scheme.

What Is the Defined Contributory Pension Scheme?

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The administration of India set up Pension Fund Regulatory and Development Authority (PFRDA) on the tenth of October 2003. It was built up to create and direct benefits part of the nation.

The National Pension System (NPS) was propelled on the first of January 2004 to give retirement salaries to every one of the residents. NPS plans to establish benefits changes and to instill the propensity for putting something aside for retirement among the residents.

At first, NPS was presented for the new government initiated (except the military). With impact from the first May 2009, Contributory Pension Scheme (NPS) has accommodated all natives of the nation including the sloppy area laborers on a willful premise.

On completion of ten years of service in the Defined contributory pension scheme, you will be able to withdraw 25 percent of the fund. So, it stated that the Defined contributory pension scheme is mandatory for government employees who were appointed after 2005.

Permanent retirement account numbers were issued in this. In this, 10 percent of the salary will get a deduction from the salary of the employee and 10 percent of the amount deposited by the government. It is easy to change the nomination. One can withdraw the amount twice at a difference of five years.

Important Features of the Defined Contributory Pension Scheme:

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NPS offers the following significant highlights to enable supporters to put something aside for retirement:

The endorser will get an allocation to an interesting Permanent Retirement Account Number (PRAN). This one-of-a-kind record number will continue as before for an amazing reminder. This extraordinary PRAN had utilized in any area in India.

Permanent Retirement Account Number (PRAN) will give access to two individual records:

Tier I Account:

The Tier-I account of the Contributory Pension Scheme is a non-withdrawable record that had implied investment funds for retirement.

Tier II Account:

The Tier-II account of the Contributory Pension Scheme is merely a controlled savings ability. And thus, the subscribers here are all free to extract savings from their accounts each time they subscriber wishes to. No tax advantage is obtainable on this account.

Salient Features of Defined Contributory Pension Scheme:

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  • (i) The Defined Contributory Pension Scheme or National Pension System takes a shot at characterized commitment premise and will have two levels – Tier-I and II. Commitment to Tier-I is obligatory for all Government workers joining Government administration on or after 1/1/2004 (aside from the military in the main arrangement), while Tier-II will be discretionary and at the tact of Government hirelings.
  • (ii) In Tier-I, a Government worker should make a commitment of 10% of his essential compensation in addition to DA, which will get a deduction from his pay charge each month by the PAO concerned. The Government will make an equivalent coordinating commitment. In any case, there will be no commitment from the Government regarding people who are not Government representatives.
  • (iii) Level I commitments (and the venture returns) had been kept in a restricted incomplete withdrawable Pension Tier-I Account. And thus, the Level II commitments had been kept in a different record that is withdrawable at the choice of the Government worker. So, the government won’t make any commitment to Tier-II accounts.
  • (iv) The current arrangements of the Defined Contributory Pension Scheme and GPF would not get access to the newcomers in the focal Government administration, for example to the Government hirelings joining Government administration on or after 1-1-2004. In any case, retirement tips and demise tips will stretch out to the focal government representatives secured under NPS on indistinguishable terms and conditions from material under CCS (Pension) Rules, 1972.
  • (v) A Government worker can exit after or at the age of 60 years from the Tier-I of the Scheme. And thus, it will get a requirement for him to contribute 40 percent of benefits riches to buy an annuity (from an IRDA-controlled Life Insurance Company) that will accommodate the annuity for the lifetime of the representative and his reliant guardians/mate. So, he would get a singular amount of the rest of the benefits riches. He will get permission to use these benefits in any way. On account of Government hirelings who leave this Defined Contributory Pension Scheme before achieving the age of 60 years old, the compulsory pension would be 80% of the benefits riches.
  • (vi) An autonomous Pension Fund Regulatory and Development Authority (PFRDA) will manage and build up the NPS.
  • (vii) To execute the Scheme, there will be a Central Record Keeping Agency (CRA). And a few Pension Fund Managers (PFM) to offer 3 classifications of Schemes to Government workers.
  • (viii) Temporarily, focal government representatives secured under the Defined Contributory Pension Scheme (NPS) has the choice to pick benefits under the old annuity plan. Or NPS in case of their passing or release from the administration on nullification.

Benefits of Contributory Pension Scheme

Here are the benefits of an NPS account. Let’s know all the befits that the New Pension Scheme offers to employees of the Central government. The contributions are mandatory so if you are a central government employee then you have no choice but to contribute to the scheme. It helps you after retirement. So, here are the benefits.


National Pension System provides a variety of investment options and a choice of Pension Fund (PF) to plan the growth of investment in a proper way and monitors the growth of the Pension Fund. Subscribers can switch from one investment option to another or from one fund manager to another.


An account opened with the National Pension System is assigned a unique Permanent Retirement Account Number (PRAN), which is a unique number and remains with the subscriber during his/her lifetime. The scheme is structured in two levels:

Tier – I Account:

This is a non-withdrawal permanent retirement account in which regular contributions by the subscriber are credited and invested as per the portfolio/fund manager chosen by the subscriber.

Tier-II Account:

A contributory Pension Scheme is a voluntary withdrawal account that is approved only if there is an active Tier – I account in the name of the subscriber. Withdrawals from this Contributory Pension Scheme account are allowed as per the need of the subscriber.


The National Pension System or Contributory Pension Scheme provides easy portability across jobs and locations. It provides a hassle-free arrangement for every subscriber at the time of transfer of the subscriber to a new job/location without leaving behind the corpus build-up, as is the case with various pension plans in India.

Well Regulated

The National Pension System or Contributory Pension Scheme is regulated by the Authority with transparent investment rules, regular monitoring, and performance review of fund managers by the National Pension System Trust. The account maintenance cost under the National Pension System is one of the lowest as compared to similar pension products across the world. However, when saving for a long-term goal like retirement, the cost matters a lot as investment charges can erode a significant amount from the fund over more than 35-40 years.

The dual benefit of low cost and power of compounding: till retirement, the pension wealth accumulation grows over some time with a compounding effect. Due to the low account maintenance charges, the benefits of the accumulated pension wealth for the subscriber are magnified.

Ease of use:

National Pension System or Contributory Pension Scheme account is manageable online. A National Pension System account can be opened through the e-NPS portal. Also, the contribution can be made online through the e-NPS portal.

Once the PRAN account is opened, an online login ID and password are provided to the subscribers. Subscribers can log in and manage their National Pension System account online with a single click.


On completion of ten years of service in the Defined Contributory Pension Scheme for Central Government employees, 25% of the pension funds will be able to withdraw. This info was given by SK Gupta, the New Pension Scheme and Pension Fund Regulatory & Development Authority in the workshop scheduled at Collectorate Auditorium.

It stated that the Defined contributory pension scheme is compulsory for government service persons appointed after 2005. Enduring retirement A/C numbers were published in this. Here, 10% of the salary gets deducted from the matching contribution from the Trustee Bank of the employee, and 10% is deposited by the govt. It’s easy to adjust the nomination and you can withdraw the amount twice at a gap of 5 years.


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Q. What is a contributory pension scheme?

A. A Contribution Pension Scheme now known as National Pension System (short NPS), was presented for Central Government employees by the Ministry of Finance (Dept of Economic Affairs). NPS was compulsory for all new employees to the Central Government employer’s contribution (except the armed forces) since 1st January 2004.

NPS is distributed via an unbundled architecture concerning intermediaries selected by the PFRDA viz. Custodians, Pension Funds, Central Recordkeeping Agency (CRA), Trustee Bank, National Pension System Trust, Points of Presence (in short PoP), and also Annuity Service Providers (in short ASPs)

Q. What is the Defined contributory pension scheme in Kerala?

A. Defined Contributory Pension Scheme (NPS) is a pension account for central govt employees and is more comparable to the Contributory Provident Fund Scheme with a few differences in fund administration and pattern of the withdrawal options.

Q. Does State Government Support a Defined Contributory Pension Scheme?

A. No State Governments don’t support defined contributory pension schemes or New Pension Schemes.

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