Contributory Pension Scheme - Benefits, Types and Registration Process

The contributory pension scheme is also known as the National Pension Scheme. This scheme is a pension plan launched by the government of India to help people to secure their life after their retirement. The Contributory pension scheme is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). 

The benefits of this scheme are available for all the Indian citizens who are in the age group of 18-60 years. The person can invest in the new pension scheme through the debt and equity market. The returns offered by the new pension scheme are much higher as it offers 8%-10% yearly returns. 

This scheme allows an individual to claim the maximum deduction of Rs. 1.5 lakh under section 80C of the Income Tax Act. If the person is in the tier-I account, then he has to make a yearly contribution of Rs.6000 as well as Rs. 500 as a one-time contribution. If the person is in the tier-II account, then he has to make a yearly contribution of Rs.2000 as well as Rs. 250 as a one-time contribution.

Details about the New Pension Scheme

  • This scheme is the best scheme to invest your money to secure your future after retirement as well as the best way to save tax.
  • If you invest in this scheme, you will get financial support after your retirement or after the age of 60.
  • You can invest in the New Pension Scheme through debt as well as the equity market.
  • After the retirement, you can withdraw your 60% of the amount and the remaining 40% amount is invested towards the pension scheme.
  • You can invest in this scheme by all types of insurance companies, banks as well as a financial institution.
  • The previous pension systems in the country provide benefits to only employers that are private and public. But through this scheme, any person who is a citizen of India can invest in this scheme.
  • This is the best investment scheme that helps the people of the country to preserve the standard of living after retirement.
  • New Pension Scheme is an effort of the government of India as well as you can invest in this scheme without any risk, and this scheme helps people to decide a way to spend their money.
  • This scheme has two tiers that are tier I and tier II. The working process of the scheme is straightforward.
  • If you are in tier I then you are not allowed to withdraw your money before the completion of the maturity period. But in tier II the person can withdraw money before the end of the maturity period.
  • The minimum amount for any individual is Rs 500 per month or Rs 6000 annually.

Benefits of the New Pension Scheme


The cost of investment is many other schemes and funds are very high like mutual funds and many more, but the value of this scheme is almost negligible. You get entry as well as exit loans on investment in the mutual funds. The cost of fund management is meagre under this scheme as well as it enhances the returns.

Freedom to entry

A new pension scheme allows every citizen of India to invest in this scheme, but the condition is that the age of the candidate must be 18 to 55 years. There are many other schemes which offer these benefits, but their benefits are only for private or public sector employees. This is the only scheme in India, which allows everyone to invest in this scheme without any bound.

Investment opportunities

The new pension scheme provides maximum returns as well as allows an individual to invest his money in a variety of funds. The returns provided by the scheme helps people to attain their investment objectives as well as top help them in for their good future. An individual can rebalance his accumulated fund free of cost as well as can invest in any fund.

Tax Implications

If a person chooses to invest in a new pension scheme, then he will be charged no tax on it. The person who will invest in this scheme will be given tax benefit over as well as above Rs 1 lakh under section 80C of income tax.

Withdrawal Rules After 60

When you get retired or after the age of 60, you are not allowed to withdraw your full amount invested in the new pension scheme. You are entitled to withdraw your 60% amount, and the remaining 40% of your amount will have to reinvest in the new pension scheme to receive a regular pension.

Early Withdrawal and Exit rules

If you want to get the benefit of this scheme after your retirement, then you have to continue to invest until the age of 60. If you are investing at least 3 years, then you can withdraw up to 25% for various purposes. These purposes are like children’s wedding or higher studies, building or buying a house or medical treatment of self/family, as well as many others. In 5 years, you are allowed to withdraw 3 times. These restrictions are only applicable to tier I accounts and not on tier II accounts.

Security to the Nomine

In the case of the death of the account holder, the nominee of the beneficiary will receive the entire amount in a lump sum. So it is safe in terms of the nominee as well.

Types of NPS Account 

There are two main account types under the new pension scheme that are tier I and tier II. The tier I account is the default account, and the latter is tier II account is voluntary addition. Is a person is opening an account under NPS then the Tier-I account is mandatory. Central Government employees can contribute 10% of their basic salary. For other people, the New Pension Scheme is an intended investment option. All the details are explained below in the table.


NPS Tier-I Account

NPS Tier-II Account





Not permitted


Tax exemption

Up to Rs 2 lakh per annual  
(Under 80C and 80CCD)

1.5 lakh for government employees
Other employees-None

Minimum NPS contribution

Rs 500 or
Rs 500 or
1000 Rs

Rs 250  

Maximum NPS contribution

No limit

No limit

Who should invest in the NPS?

The new pension scheme is the best scheme for the person who wants to preplan his future and has a low-risk appetite. If you get regular pension after your retirement, it feels like a boon and especially for those employees who retired from any private-sector job. If you invest in a new pension scheme, then it will bring a massive difference in your years after retirement. The people who want tax deductions also invest in this scheme. 

How to open an NPS account?

The PFRDA department regulates all the operation of the new pension scheme. The person can open the account under this scheme online as well as an offline

Offline Process

  • If you want to open an NPS account then at first you will have to find a PoP-Point of Presence, and it may be a bank too.
  • Then collect a subscriber from PoP-Point of Presence or the bank and attach it with the KYC papers.
  • If you are already a KYC-compliant with that bank, then you can ignore this step.
  • When you will make your first investment of Rs. 500 or Rs. 250 monthly or Rs. 1,000 annually, then the bank will send you a Permanent Retirement Account Number (PRAN).
  • This password will help you to log in to your account at any time. 
  • One time registration process fee is just Rs.125.

Online Process

If you do not want to open the NPS account offline, then you can open with the online process. There are simple steps you have to follow an NPS account online that are mentioned below.

1. If you link your account with PAN, Aadhaar, and mobile number, then it is a straightforward process. At first, you have to click on this link:

2. You will have to click the "NATIONAL PENSION SCHEME" button.

3. Now, you will see the Registration button. Click on it.

4. You can fillup the appeared form and submit.

3. This will create Permanent Retirement Account Number (PRAN) that is further used for NPS login.