National Pension System

NPS covers central government employees who joined on or after 1 January 2004. Employee 10%, government 14% of basic pay plus DA, with no assured pension.

Updated 3 August 2026

The National Pension System is the contributory, market-linked pension scheme that is mandatory for central government employees, other than the armed forces, who joined service on or after 1 January 2004, regulated by the Pension Fund Regulatory and Development Authority under the PFRDA Act, 2013. The employee contributes 10% of basic pay plus dearness allowance and the government contributes 14% of the same base into a Tier I retirement account. At superannuation up to 60% of the accumulated corpus is taken as a tax-free lump sum and at least 40% buys an annuity, which pays the monthly pension. Nothing in the scheme fixes what that pension will be.

That is the whole difference from what came before. The Old Pension Scheme was a defined benefit: the employee paid nothing, the government promised half the last drawn basic pay, and the cost and the longevity risk sat on the budget. NPS is a defined contribution: the government’s obligation ends with its 14%, and the eventual pension depends on how the corpus grows and what annuity rate it buys on the day the employee retires. Two employees with identical careers can retire on different pensions if their investment choices or their retirement dates differ.

The risk transfer is why the scheme has been contested for two decades and why the government answered with the Unified Pension Scheme, notified on 24 January 2025 and effective from 1 April 2025, which restores an assured 50% pension inside the contributory structure. About 1.22 lakh central government employees took it before the window closed on 30 November 2025, out of roughly 24 lakh who were eligible. The rest remain on plain NPS, which makes this article the position for the large majority of the central government workforce recruited since 2004.

This article sets out who is covered, the two accounts, the contribution rates and their base, the intermediaries built around PFRDA, the six investment choices open since 1 December 2025, exit at superannuation and on premature exit, partial withdrawal during service, what the December 2025 liberalisation does and does not reach, the death and disablement benefit under the CCS (Implementation of NPS) Rules, 2021, the Section 80CCD tax treatment, portability, and the comparison with the Old Pension Scheme and the Unified Pension Scheme. Every load-bearing figure is cited to the governing notification, the PFRDA regulation or circular, or the tax statute.

Who is covered

The National Pension System applies to central government employees, other than the armed forces, who joined service on or after 1 January 2004. The Ministry of Finance, Department of Economic Affairs, introduced it by notification F. No. 5/7/2003-ECB & PR dated 22 December 2003, effective from 1 January 2004, closing the Old Pension Scheme to new entrants from that date. The armed forces are the standing exception and were never brought in.

The cut-off is a date, not a period of service, and it decides everything that follows. An employee who joined on 31 December 2003 is on the Old Pension Scheme and will draw 50% of last pay from the budget. An employee who joined on 1 January 2004 is on NPS and will draw whatever an annuity bought with at least 40% of the corpus pays. Nothing else about the two employees needs to differ.

The scheme was opened to all citizens in 2009 and placed on a statutory footing by the Pension Fund Regulatory and Development Authority Act, 2013, which converted PFRDA from an executive body into a statutory regulator. Those steps widened the scheme without touching the government-sector rules: for a central government employee, the coverage test remains the date of joining, and the contribution and exit terms described below are specific to the government sector and differ from the All Citizen model at several points.

Tier I and Tier II accounts

Tier I is the pension account and is mandatory. It is identified by a Permanent Retirement Account Number, it receives both the employee’s 10% and the government’s 14% of basic pay plus dearness allowance, and the money in it is locked in until an exit event under the withdrawal rules set out below. Every NPS subscriber holds one.

Tier II is an optional savings account, open only to a person who already holds Tier I. It has no lock-in, the subscriber can withdraw from it freely, and in the ordinary case it carries no tax benefit at all. There is one exception, and it belongs to central government employees alone: the NPS Tier II Tax Saver Scheme, introduced in 2020, allows a central government employee to count a Tier II contribution toward the Section 80CCE ceiling of Rs. 1,50,000, subject to a 3-year lock-in on that contribution and available in the old regime only.

The distinction matters when reading any statement about NPS returns or balances. Tier I is the pension. Tier II is a savings account that happens to sit on the same platform, and a Tier II balance is not part of the corpus that must be annuitised at exit.

Contributions

The employee contributes 10% and the government 14%, both of basic pay plus dearness allowance, into the employee’s Tier I account. The base is not gross salary: house rent allowance, transport allowance and every other allowance are excluded, so a subscriber comparing the deduction on the pay slip against 10% of gross will always find a mismatch.

The government’s 14% is itself a revision. NPS began with the government matching the employee at 10%. The share was raised to 14% with effect from 1 April 2019, following a Cabinet decision of December 2018 and Ministry of Finance notification F. No. 1/3/2016-PR dated 31 January 2019, and the employee’s own 10% was left untouched. The corresponding tax change came separately: the Finance (No. 2) Act 2019 raised the Section 80CCD(2) deduction ceiling for government employees from 10% to 14%, so the higher contribution is fully deductible rather than partly taxable as salary.

Because the base is basic pay plus dearness allowance, the rupee contribution rises with every annual increment, every promotion and every dearness-allowance revision, without any decision by the employee. At a basic pay of Rs. 35,400, which is the entry cell of Level 6 in the pay matrix, with dearness allowance at 60%, the base is Rs. 56,640: the employee contributes Rs. 5,664 a month and the government adds Rs. 7,930, for a combined Rs. 13,594 flowing into the corpus. At Level 10 entry pay of Rs. 56,100 the same 60% gives a base of Rs. 89,760, so the monthly credit is Rs. 8,976 from the employee and Rs. 12,566 from the government.

The architecture around PFRDA

No single entity in the National Pension System holds both the records and the money. That separation is the scheme’s core design, and it is enforced by the Pension Fund Regulatory and Development Authority, the statutory regulator under the PFRDA Act, 2013, which registers and supervises every other intermediary.

The corpus is held by the NPS Trust, which owns the assets on behalf of subscribers so that the money is never on the balance sheet of any intermediary. Accounts and Permanent Retirement Account Numbers are maintained by the Central Recordkeeping Agencies, which are Protean eGov Technologies, KFin Technologies and CAMS. Investment is done by the Pension Funds, of which ten are registered with PFRDA; for the government sector the default allocation runs among the funds of the State Bank of India, the Life Insurance Corporation and UTI. At exit the annuity is sold by Annuity Service Providers, which are IRDAI-registered life insurers empanelled by PFRDA, such as LIC, SBI Life, HDFC Life and ICICI Prudential.

A government subscriber does not deal with any of these directly. The transactions run through the nodal-office hierarchy of the department: the Drawing and Disbursing Officer, the Pay and Accounts Office, and the Principal Accounts Office, registered with the Central Recordkeeping Agency in Forms N3, N2 and N1 respectively. A contribution reaches the Pension Fund through that chain, and an exit request travels back up it.

Where the money is invested

About 96% of central government subscribers are in the Default Scheme, which PFRDA allocates among the pension funds of the State Bank of India, the Life Insurance Corporation and UTI in a predefined proportion. Its asset-allocation ceilings are 65% for government securities and related investments, 45% for debt instruments, 25% for equity with effect from 1 April 2025, 10% for short-term money-market instruments, and 5% for asset-backed and structured instruments. Equity in the government default is therefore capped at a quarter of the corpus, and an employee who never files a choice stays here for a full career.

A choice has been available since 2019. Ministry of Finance Office Memorandum No. 1/3/2016-PR dated 31 January 2019, operationalised by PFRDA circular No. PFRDA/2019/12/REG_PF/1 dated 8 May 2019, let central government subscribers select their own pension fund, including a private-sector fund, and their own investment pattern. PFRDA then widened the menu by circular No. PFRDA/2025/21/Reg-PF/03 dated 1 December 2025, issued under Ministry of Finance gazette notification No. FX-4/2/2025-PR dated 13 November 2025, taking the options from four to six.

Investment choice	Equity exposure
Default Scheme	Up to 25% from 1 April 2025, allocated by PFRDA among SBI, LIC and UTI
Active Choice, G-100	Nil; the whole corpus in government securities
Auto Choice, Life Cycle 25 Low (5E/55Y)	25% to age 35, tapering to 5% at 55
Auto Choice, Life Cycle 50 Moderate (10E/55Y)	50% to age 35, tapering to 10% at 55
Auto Choice, Life Cycle 75 High (15E/55Y)	75% to age 35, tapering to 15% at 55
Auto Choice, Aggressive (35E/55Y)	50% to age 45, tapering to 35% at 55 and held to exit

A subscriber who leaves the Default Scheme must pick one of the five other options and one pension fund from the ten registered with PFRDA. The pension fund may be changed once a financial year and the investment pattern twice. The naming used above follows the rationalisation PFRDA issued by circular No. PFRDA/2025/16/Reg-PF/02 dated 17 October 2025, under which the label states the terminal equity share and the age at which it is reached, so “15E/55Y” means 15% equity from age 55.

The choice compounds over a career. A higher equity share raises both the expected corpus and its year-to-year swing, and because NPS fixes no pension, the size of the corpus at retirement is one of the two variables that decide what the annuity will pay. The other is the annuity rate, which no subscriber controls. The NPS corpus calculator projects the accumulation at a chosen contribution and rate of return.

What pension NPS actually pays

NPS pays whatever an annuity bought with at least 40% of the accumulated corpus yields at the rate available on the day of retirement. The mechanism is fixed and the outcome is not, and no projection of an NPS pension is a promise.

Take an employee retiring with a Tier I corpus of Rs. 1 crore. Up to Rs. 60 lakh is taken as a lump sum, exempt under Section 10(12A) of the Income-tax Act, 1961. At least Rs. 40 lakh buys an annuity. At an illustrative annuity rate of 6% a year, that Rs. 40 lakh yields about Rs. 2,40,000 a year, or roughly Rs. 20,000 a month, and the annuity income is taxable as pension in the year of receipt. An employee who annuitises Rs. 60 lakh instead of the minimum Rs. 40 lakh draws about Rs. 30,000 a month and takes Rs. 40 lakh as the lump sum.

Set that against the Old Pension Scheme, where an employee retiring on basic pay of Rs. 79,000 draws 50% of it, Rs. 39,500 a month, plus dearness relief, with no reference to any corpus and no exposure to interest rates. The NPS annuity, once purchased, is also fixed in rupee terms for life unless the variant chosen provides otherwise: there is no dearness-relief indexation on an NPS annuity, which is the difference that grows most over a long retirement.

The government-sector default annuity variant is a life annuity under which 100% of the annuity continues to the spouse on the subscriber’s death, with the purchase price returned to the nominee after both. A variant that returns the purchase price pays a lower monthly amount than one that does not, so the default trades income for capital protection.

Exit at superannuation

At superannuation a central government employee takes up to 60% of the accumulated pension wealth as a lump sum and uses at least 40% to buy an annuity. That 60:40 split is set by the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, and it was not changed by the amendment notified on 12 December 2025.

What the December 2025 amendment changed for a retiring government employee is the small-corpus relief and the phasing. The threshold below which the whole corpus may be taken as a lump sum, with no annuity at all, rose from Rs. 5 lakh to Rs. 8 lakh, on the reasoning that a corpus that small buys a negligible annuity.

Corpus at superannuation	What a government subscriber may do
Up to Rs. 8 lakh	Take 100% as a lump sum, or phase it, or take the normal 60:40
Over Rs. 8 lakh and up to Rs. 12 lakh	Up to Rs. 6 lakh as a lump sum, the balance by periodic redemption over at least 6 years or as annuity, or the normal 60:40
Over Rs. 12 lakh	Up to 60% as a lump sum, at least 40% as annuity

Two further changes ease the timing. A subscriber may defer the lump sum or the annuity purchase and keep contributing up to a maximum age that the amendment raised from 75 to 85, and continuation is now automatic rather than requiring 15 days’ notice. And the lump sum need not be drawn in one payment: the Systematic Lump Sum Withdrawal facility, introduced by PFRDA circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023, pays it in automated monthly, quarterly, half-yearly or yearly instalments up to the maximum age. That facility is available at superannuation and at premature exit, but not on exit due to death.

An exit may be initiated up to 6 months before the date of retirement, through the Central Recordkeeping Agency and routed up the nodal-office chain, so that the lump sum and the annuity are in place around the retirement date rather than months after it. The NPS exit and withdrawal rules article carries the process in full.

Premature exit before superannuation

Premature exit reverses the split: up to 20% of the corpus as a lump sum, and at least 80% to buy an annuity. It is triggered whenever a government employee leaves service before superannuation, by resignation, voluntary retirement, or removal, and the base 20:80 proportion was not changed on 12 December 2025.

The small-corpus threshold on premature exit rose from Rs. 2.5 lakh to Rs. 5 lakh in that amendment. A government subscriber whose corpus is up to Rs. 5 lakh may take the whole amount as a lump sum; above Rs. 5 lakh the 20:80 rule applies. There is no separate minimum-service gate, because leaving service before superannuation is itself the trigger. The 15-year vesting period and the 5-year lock-in that are often quoted belong to the All Citizen model and do not apply to a government exit.

The direction of the split is deliberate. An employee who leaves at 40 has a long retirement to fund and a corpus that has not finished compounding, so the regulations force most of it into a pension rather than releasing it as cash. The consequence is that a mid-career resignation converts an NPS account into a small annuity starting decades later, which is the outcome an employee weighing a technical resignation against a plain one needs to understand, because a technical resignation is not an exit at all.

Partial withdrawal during service

A subscriber may take out up to 25% of their own contributions during service without exiting the scheme. The 25% is computed on the employee’s contributions alone: the government’s 14% and the investment returns on the whole corpus are excluded, and on a second or later withdrawal only the additional own contributions made since the previous one count.

Partial withdrawal is available after 3 years of membership. The amendment notified on 12 December 2025 raised the number of times permitted before retirement from three to four and set a minimum gap of 4 years between withdrawals. The permitted purposes were revised at the same time and are now a child’s higher education; a child’s marriage; the purchase or construction of a first residential house, as a one-time withdrawal not open to someone who already owns a house other than ancestral property; medical treatment or hospitalisation, broadened from a closed list of critical illnesses to cover the subscriber, spouse, children and parents; disability; and the settlement of a financial obligation taken against a lien on the NPS account. Two earlier purposes were removed, namely skill development or self-development and starting a business, so a withdrawal cannot now be taken for either.

A partial withdrawal is exempt from income tax under Section 10(12B) of the Income-tax Act, 1961, which is the provision that makes it materially different from an early exit.

Scope of the December 2025 exit liberalisation

The 80:20 option introduced on 12 December 2025 does not apply to central government employees. It was widely reported as allowing any NPS subscriber to take 80% of the corpus as a lump sum with only 20% annuitised. Its scope is the All Citizen model, the corporate sector, and individuals who join NPS after age 60. The government sector stays at 60:40 at superannuation and 20:80 on premature exit, and a retiring government employee who plans on an 80% lump sum is planning on a figure that does not apply to them.

There is a further catch for those the 80% does reach. Section 10(12A) of the Income-tax Act, 1961 exempts only 60% of the corpus, so the additional 20% taken as a lump sum is taxable at the slab rate until the tax law is amended to match. That gap does not arise for a government employee, who is capped at 60% in the first place, and 60% is exactly what the exemption covers.

Benefits on death or disablement in service

What the family of an NPS employee receives on death in service is decided by an option the employee files at joining, not by the size of the corpus. Rule 10 of the Central Civil Services (Implementation of National Pension System) Rules, 2021 requires every NPS-covered central government servant to exercise that option in Form 1: either benefits under the CCS pension rules, meaning an assured family pension or extraordinary pension, or the benefits of the accumulated NPS corpus. The same option governs boarding out on disablement and retirement on invalidation.

The option is the employee’s and cannot be made by the family after the death. Where no option was filed, the default under the 2021 Rules is the family pension for the first 15 years of service and the NPS benefit thereafter. A Department of Pension and Pensioners’ Welfare Office Memorandum dated 26 October 2022 set out the exercise of the Form 1 options.

Route chosen in Form 1	What the family receives
CCS pension rules	An assured family pension or extraordinary pension; the government’s share of the corpus and its returns revert to the government, and the employee’s own share is paid as a lump sum to the nominee
NPS corpus	Benefits from the accumulated wealth under the 2015 exit regulations: up to 20% as a lump sum, at least 80% as annuity, or the whole corpus where it is up to Rs. 8 lakh

Rule 20 of the 2021 Rules governs the mechanics where the CCS pension route applies: the government’s share is transferred back to the government account and the employee-share corpus goes to the nominee, or to the legal heir where there is no valid nomination. One safeguard runs the other way. Where the CCS pension option cannot take effect because there is no eligible family member for a family pension, it is treated as invalid and the NPS benefits pass to the legal heirs instead.

For most families the assured family pension is worth more than a corpus that has had only part of a career to build, which is why Form 1 is a decision to take at the start of service rather than leave to the default. The Unified Pension Scheme carries its own family payout, fixed by regulation 16(1) of the PFRDA Regulations of 19 March 2025 at 60% of the admissible payout the pensioner was drawing immediately before the death, which is not the same as 60% of the assured payout where a final withdrawal or a corpus shortfall had cut the payout. The gratuity under the NPS Rules 2021 is payable separately from any of these.

Income-tax treatment

Only one of the three NPS deductions survives in the new tax regime, and it is Section 80CCD(2), the deduction for the employer’s contribution, which for a central government employee runs up to 14% of basic pay plus dearness allowance. Because the default regime is the new one, that is the practical position for most serving subscribers.

Section 80CCD(1) covers the employee’s own contribution, up to 10% of basic pay plus dearness allowance, but inside the overall Rs. 1,50,000 ceiling of Section 80CCE, which it shares with Section 80C and Section 80CCC. The mandatory 10% deduction competes there with life-insurance premiums, tuition fees and home-loan principal, so it is often absorbed with no room to spare. Section 80CCD(1B) adds up to Rs. 50,000 for the employee’s own contribution over and above that ceiling, and nothing else competes for it. Both are available in the old regime only.

Section	Whose money	Limit	Old regime	New regime
80CCD(1)	Employee’s own	10% of basic plus DA, within Rs. 1.5 lakh	Yes	No
80CCD(1B)	Employee’s own, additional	Rs. 50,000, above Rs. 1.5 lakh	Yes	No
80CCD(2)	Employer’s	14% of basic plus DA, above Rs. 1.5 lakh	Yes	Yes

The commonest error is to add 80CCD(1) and 80CCD(2) together as though they were one deduction. They are not: 80CCD(1) is the employee’s own money inside the Rs. 1.5 lakh ceiling and old regime only, while 80CCD(2) is the employer’s money outside that ceiling and available in both regimes for a government employee.

At exit, the lump sum of up to 60% is exempt under Section 10(12A) and a partial withdrawal is exempt under Section 10(12B), while the annuity is taxed as pension income in the year of receipt. The Income-tax Act, 2025, in force from 1 April 2026, carries all of these forward under renumbered provisions, so an employee reading the new Act will find the same reliefs under different clause numbers. The NPS tax benefits article works through the deductions in full, Section 80CCD(1B) covers the additional Rs. 50,000, and income tax for government employees covers the choice between the regimes.

Portability of the account

The Permanent Retirement Account Number follows the employee. On a technical resignation, which is the resignation tendered to take up another government post applied for through proper channel, the balance in the Personal Retirement Account and the PRAN itself are carried forward to the new office: there is no fresh number, no break in the corpus, and both the employee and the government contributions resume against the same account.

This is where NPS is simpler than the scheme it replaced. A pre-2004 employee on the Old Pension Scheme who moves posts depends on Rule 26 of the CCS (Pension) Rules for past service to count, and the protection turns on whether the new post is pensionable. An NPS subscriber carries the corpus itself, so the question of counting past service does not arise: the account is the entitlement.

Old Pension Scheme, NPS and the Unified Pension Scheme

The three schemes are points on a line from full government guarantee to full market exposure, and a central government employee is on exactly one of them by date of joining and, since 2025, by a closed option.

	Old Pension Scheme	National Pension System	Unified Pension Scheme
Applies to	Joined on or before 31 December 2003	Joined on or after 1 January 2004	NPS employees who opted in by 30 November 2025
Employee contribution	Nil	10% of basic plus DA	10% of basic plus DA
Government contribution	Nil; paid from the budget	14% to the individual corpus	18.5%, of which 10% to the individual corpus and 8.5% pooled
Pension	50% of last drawn basic pay, assured	Whatever the annuity on at least 40% of the corpus yields	50% of the last 12 months’ average basic pay for 25 years’ service, assured
Minimum	Rs. 9,000 a month	None	Rs. 10,000 a month at 10 years’ service
Family benefit	Family pension under the CCS pension rules	Per the Form 1 option, or the corpus annuity	60% of the pensioner’s admissible payout
Dearness relief	Yes	No, the annuity is not indexed	Yes
Funded	No	Yes	Yes

The Unified Pension Scheme is the government’s answer to two decades of demand for the restoration of the Old Pension Scheme. Rajasthan, Chhattisgarh, Punjab, Jharkhand and Himachal Pradesh announced a reversion to the Old Pension Scheme for their own employees in 2022 and 2023, though PFRDA has held that contributions already made under NPS remain within it. The central government did not restore the older scheme; it built an assured payout inside the funded, contributory framework instead. The NPS versus OPS versus UPS article compares the three in detail, and the OPS vs NPS vs UPS calculator puts numbers against a given pay and length of service.

The Unified Pension Scheme option

The Unified Pension Scheme assures 50% of the average basic pay of the last 12 months of service for an employee with at least 25 years of qualifying service, pro-rated on the ratio of qualifying service in months to 300 for service between 10 and 25 years, with an assured minimum of Rs. 10,000 a month at 10 years, a family payout of 60% on the pensioner’s death, and dearness relief indexation on all three. It was approved by the Union Cabinet on 24 August 2024, notified by the Ministry of Finance vide F. No. FX-1/3/2024-PR dated 24 January 2025, operationalised by the PFRDA (Operationalisation of Unified Pension Scheme under NPS) Regulations, 2025 notified on 19 March 2025, and applied to central civil employees by the CCS (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, notified vide G.S.R. 599(E) dated 2 September 2025. It came into effect on 1 April 2025.

The contribution split under the Unified Pension Scheme is the figure most often stated wrongly. The employee still contributes 10% of basic pay plus dearness allowance. The government contributes 18.5% in total, but only 10% of that goes to the employee’s individual corpus, matching the employee; the additional 8.5% of the aggregate pay of all subscribers goes to a separate pooled corpus that backs the assured payouts across the whole body of Unified Pension Scheme employees. The individual-corpus government share under the Unified Pension Scheme is therefore 10%, not the 14% of plain NPS, and an employee who opts in gives up 4 percentage points of individual accretion in exchange for the assurance.

The enrolment window opened on 1 April 2025 and closed, after successive extensions, on 30 November 2025. About 1.22 lakh central government employees opted in against roughly 24 lakh eligible, so the great majority stayed on plain NPS and no longer have the choice. A one-time, one-way facility lets a Unified Pension Scheme subscriber switch back to NPS, on which the government’s individual-corpus contribution is restored to 14%, but only at fixed points: the CCS (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025 allow it within 12 months before the date of superannuation, three months before the deemed date of voluntary retirement, or at the time of resignation or of compulsory retirement that is not imposed as a penalty. The switch is barred where an employee is removed, dismissed, or compulsorily retired as a penalty. The reverse move, from NPS to the Unified Pension Scheme, is closed.

Bearing on the 8th Central Pay Commission

A pay commission does not set the NPS formula, but it re-bases every number that feeds it. Because the contribution is 10% and 14% of basic pay plus dearness allowance, a pay revision raises the rupee flow into every subscriber’s corpus from the date of implementation, and for a Unified Pension Scheme optee it raises the average last-12-months basic pay on which the assured 50% is computed.

The 8th Central Pay Commission was constituted by Ministry of Finance, Department of Expenditure Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025, and it is the first pay commission to sit after the Unified Pension Scheme came into force. Its terms of reference require it to examine the pension framework in the context of both NPS and the Unified Pension Scheme. The Commission has been given 18 months from 3 November 2025, which runs to 3 May 2027, and it has recommended nothing so far, so no figure attributed to it is a fact. Until it reports and a revised pay is notified, the current pay drives the current contributions, and the 7th CPC salary calculator shows the NPS deduction inside the full salary at a chosen level.

Frequently Asked Questions (FAQs)

Who is covered by the National Pension System?

The National Pension System is mandatory for central government employees, other than the armed forces, who joined service on or after 1 January 2004, under Ministry of Finance notification F. No. 5/7/2003-ECB & PR dated 22 December 2003. Employees recruited on or before 31 December 2003 remain on the Old Pension Scheme.

How much is contributed to NPS for a government employee?

The employee contributes 10% of basic pay plus dearness allowance, and the government contributes 14% of the same base, raised from 10% with effect from 1 April 2019. Both credits go to the employee’s Tier I account. Gross salary is not the base: house rent allowance, transport allowance and other allowances are excluded.

How much pension does NPS give?

NPS fixes no pension. At superannuation at least 40% of the accumulated corpus must buy an annuity, and that annuity pays the monthly pension, so the amount turns on the corpus accumulated over the career and on the annuity rate available at retirement. A corpus of Rs. 1 crore with Rs. 40 lakh annuitised at an illustrative 6% yields about Rs. 20,000 a month, which is taxable.

What are the tax benefits of NPS?

The employee’s own contribution is deductible under Section 80CCD(1) within the Rs. 1,50,000 ceiling of Section 80CCE, with a further Rs. 50,000 under Section 80CCD(1B). The government’s contribution is deductible under Section 80CCD(2) up to 14% of basic pay plus dearness allowance. Only 80CCD(2) survives in the new tax regime, so it is the one NPS deduction a government employee on the default regime still gets.

How much can be taken as a lump sum at retirement?

Up to 60% of the Tier I corpus, tax-free under Section 10(12A), with at least 40% buying an annuity. Where the corpus at superannuation is up to Rs. 8 lakh, the whole amount may be taken as a lump sum with no annuity, a threshold raised from Rs. 5 lakh by the PFRDA exit amendment notified on 12 December 2025.

Does the December 2025 rule allowing 80% as a lump sum apply to government employees?

No. The 80:20 option introduced by the PFRDA exit amendment of 12 December 2025 applies to the All Citizen model, the corporate sector, and individuals joining after age 60. Central government employees stay on 60:40 at superannuation and 20:80 on premature exit. Planning on an 80% lump sum is the commonest error about the new rules.

What happens to NPS if an employee resigns before retirement?

Resignation, voluntary retirement or removal triggers a premature exit: up to 20% of the corpus as a lump sum and at least 80% to buy an annuity. Where the corpus is up to Rs. 5 lakh, raised from Rs. 2.5 lakh on 12 December 2025, the whole amount may be taken. A move to another government post through proper channel is a technical resignation, not an exit, and the same PRAN and corpus carry forward.

Can money be withdrawn from NPS during service?

Yes, up to 25% of the subscriber’s own contributions, excluding the government share and the investment returns, after 3 years of membership. The December 2025 amendment raised the number of permitted withdrawals from three to four before retirement, with a minimum gap of 4 years, for a child’s higher education or marriage, a first house, medical treatment for the subscriber, spouse, children or parents, disability, or settling a loan taken against a lien on the account.

What does the family get if an NPS employee dies in service?

It depends on the option the employee filed in Form 1 under Rule 10 of the CCS (Implementation of NPS) Rules, 2021: either an assured family pension under the CCS pension rules, or the benefits of the accumulated NPS corpus. The option is the employee’s, exercised at joining, and the family cannot make it after the death. Where no option was filed, the default is the family pension for the first 15 years of service and the NPS benefit thereafter.

Where is the NPS money of a government employee invested?

About 96% of central government subscribers sit in the Default Scheme, allocated by PFRDA among the pension funds of SBI, LIC and UTI, with equity capped at 25% since 1 April 2025. Since PFRDA circular PFRDA/2025/21/Reg-PF/03 dated 1 December 2025 a subscriber may instead pick one of five other options, including two new life-cycle funds carrying up to 75% equity.

What is the difference between NPS Tier I and Tier II?

Tier I is the mandatory pension account, locked in until exit, and it is where the employee’s 10% and the government’s 14% are credited. Tier II is an optional savings account with no lock-in and no tax benefit in the ordinary case, available only to a Tier I holder. Central government employees alone may claim Section 80C on a Tier II Tax Saver contribution, subject to a 3-year lock-in.

What is the difference between NPS, OPS and UPS?

The Old Pension Scheme is a non-contributory defined benefit paying 50% of last pay from the budget. NPS is contributory and market-linked with no assured pension. The Unified Pension Scheme, notified on 24 January 2025 and effective from 1 April 2025, assures 50% of the last 12 months’ average basic pay while keeping the contributory structure, with the government paying 18.5% of which only 10% reaches the individual corpus.

Can an employee still opt for the Unified Pension Scheme?

No. The enrolment window opened on 1 April 2025 and closed, after successive extensions, on 30 November 2025. About 1.22 lakh of roughly 24 lakh eligible central government employees opted in. A one-time, one-way facility lets a Unified Pension Scheme subscriber switch back to NPS, on which the individual-corpus government share is restored to 14%, but only within 12 months before superannuation, three months before the deemed date of voluntary retirement, or at resignation or non-penal compulsory retirement. The reverse move is closed.

Does the NPS corpus transfer when an employee moves to another government post?

Yes. On a technical resignation to another government post applied for through proper channel, the balance in the Personal Retirement Account and the Permanent Retirement Account Number are carried forward to the new office. The same PRAN follows the employee, with no fresh number and no break in the corpus, and both contributions resume against the same account.

Will the 8th Central Pay Commission change NPS?

A pay commission does not set the NPS formula, but the terms of reference in Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025 require the 8th Central Pay Commission to examine the pension framework in the context of both NPS and the Unified Pension Scheme. A pay revision also raises the rupee contribution directly, because the base is basic pay plus dearness allowance.

External references

References

Ministry of Finance, Department of Economic Affairs, Notification No. 5/7/2003-ECB & PR, dated 22 December 2003, introducing the National Pension System for central government entrants from 1 January 2004.
Pension Fund Regulatory and Development Authority Act, 2013.
Ministry of Finance, Notification F. No. 1/3/2016-PR, dated 31 January 2019, raising the government contribution to 14% with effect from 1 April 2019 and providing choice of pension fund and investment pattern; PFRDA Circular No. PFRDA/2019/12/REG_PF/1 dated 8 May 2019 operationalising the choice.
PFRDA Circular No. PFRDA/2025/21/Reg-PF/03 dated 1 December 2025, enhancing investment choice options for central government subscribers to six, issued under Ministry of Finance gazette notification No. FX-4/2/2025-PR dated 13 November 2025; nomenclature per PFRDA Circular No. PFRDA/2025/16/Reg-PF/02 dated 17 October 2025.
PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, notified 11 May 2015 vide No. PFRDA/12/RGL/139/8, as amended by the Amendment Regulations dated 12 December 2025 (F. No. PFRDA/16/14/06/0009/2018-REG-EXIT), published in the Gazette on 16 December 2025, and by the Amendment Regulations, 2026, notified 13 July 2026, which inserted Regulation 4A and did not alter the exit proportions or thresholds.
PFRDA Circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023, Systematic Lump Sum Withdrawal facility.
Central Civil Services (Implementation of National Pension System) Rules, 2021, Rules 10 and 20; Department of Pension and Pensioners’ Welfare Office Memorandum dated 26 October 2022 on the Form 1 options.
Income-tax Act, 1961, Section 80CCD (deductions), Sections 10(12A) and 10(12B) (exempt withdrawals); Finance (No. 2) Act 2019, raising the Section 80CCD(2) ceiling for government employees to 14%; Income-tax Act, 2025, carrying these forward under renumbered provisions from 1 April 2026.
Ministry of Finance, Department of Financial Services, gazette notification F. No. FX-1/3/2024-PR, dated 24 January 2025, notifying the Unified Pension Scheme; PFRDA (Operationalisation of Unified Pension Scheme under NPS) Regulations, 2025, notified 19 March 2025; CCS (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, G.S.R. 599(E) dated 2 September 2025.
Ministry of Finance, Department of Expenditure, Resolution F. No. 01-01/2025-E.III(A), dated 3 November 2025, constituting the 8th Central Pay Commission.