Who can join the National Pension System?

Any Indian citizen between 18 and 60 years. At present, only Tier I of the scheme, involving a contribution to a non-withdrawable account, is open. Subsequently, Tier II accounts, which permit voluntary savings that can be withdrawn at any point of time, can be opened. But to be eligible to open a Tier II account, you need a Tier I account.

How do I enroll?

How much can I invest?

There is no investment ceiling. But the minimum investment limit has been fixed at Rs.500 a month or Rs.6,000 annually. Subscribers are required to contribute at least once a quarter but there is no ceiling on how many times you invest during the year.

What is the penalty for failure to make the minimum payment?

You will have to bear a penalty of Rs 100 per year of default and will need to pay it with the minimum amount to reactivate the account. Also, dormant accounts will be closed when the account value falls to zero.

Are my investments guaranteed?

No. There is no guarantee since NPS is a defined contribution scheme and the benefits depend on the amount contributed and the investment growth up to the time of exit.

How should I select my investment option?

You can choose the investment mix between equity or E (high risk but high returns), mainly fixed income instruments or C (that come with medium risk and returns) and pure fixed investment products or G (which offer low returns but have very low risks associated with them). Equity investment is capped at 50 per cent.

At present, the equity investment consists of index funds that replicate the Sensex or Nifty portfolio. The C segment includes liquid funds, corporate debt instruments, fixed deposits and public sector, municipal and infrastructure bonds. The pure fixed investment instruments include state and central government securities.

There is a trade-off between risk and returns, with a younger investor placed better to take risks.

If you are unable to decide the investment mix, the default option will kick in.

The default option, called auto choice lifecycle fund, will see the investment mix change according to the age of the subscriber. At the lowest entry age of 18 years, auto choice entails an investment of 50 per cent in E, 30 per cent in C and 20 per cent in G.

The ratios will remain unchanged till the subscriber turns 36, when the ratio of investment in E and C will decrease annually, while the proportion of G rises.

By the time the subscriber is 55 years, G will account for 80 per cent of the corpus, while the share of E and C will fall to 10 per cent each.

The normal retirement age has been fixed at 60 years. At 60, you will be required to use at least 40 per cent of your accumulated savings to buy a life annuity from an insurance company. A phased withdrawal is also allowed but the lump sum benefit has to be availed of before you turn 70 years.

For those looking to exit before turning 60, there is an option to withdraw 20 per cent of the accumulated savings but buy an annuity with the remaining 80 per cent.

If the subscriber dies before he or she turns 60, the nominee can receive the entire pension corpus. Alternatively, a subscriber can exit if the account value falls to zero or if the citizenship status changes. The age of exit will be reviewed by PFRDA from time to time. There will also be the option to select an annuity that will pay a survivor pension to your spouse.