National Pension System or NPS is referred as a great solution for retirement planning. This government sponsored scheme was launched in 2004 primarily for government employees. In 2009, it got open for all Indian residents and from 2015, NRIs are also allowed to invest in NPS.

As per NPS, an investor can contribute a certain sum of money to this retirement fund regularly and use it to buy annuity for getting regular income during retirement. Investors are free to withdraw a certain lump-sum from fund and keep the rest invested to avail the option of annuity. Also, NPS gives tax deduction u/s 80 C with additional tax benefit u/s 80CCD (1B) of the Income Tax Act.

Recently, an array of changes has been brought into the scheme which makes it look more attractive than before:

1.Government announced to increase its contribution to central government employees account from 10% to 14% -effective from April 1, 2019. 

2. It has made withdrawal of corpus completely tax free. But one can withdraw only 60% the corpus and remaining 40% has to be used to buy annuity and this annuity is still taxable.

3. NPS has two types of accounts– Tier 1 and Tier 2 – the former account was a non withdraw able till the time of retirement while the later is a savings account. Contribution by the central government employees under Tier II account will now qualify for deduction under section 80C up to Rs. 1.50 lakh, provided there is a lock-in period of three years. One can withdraw money from the Tier 1 account partially after lock-in period is over.

5. Last but not least, centre has now allowed greater equity exposure in NPS account. An investor in NPS now can choose their asset allocation pattern and pension fund manager. Also, for the subscribers below the age of 50, the cap on equity investment has been increased to maximum limit of 75%. Earlier, it was limited to 50%.

If an investor is not confident or well versed with the investment options to choose, they can opt for the auto option in the scheme. The proportion of funds in this category will be invested across the asset classes according to the regulator.

To conclude, new and improved NPS could be a good option for retirement goal though be careful of risk which comes with the equity and take into consideration the poor exit options. NPS can give good returns if you are adding higher amounts and choosing right funds for investments.