Pension rules, charges and 2026 changes
NPS Tier I and Tier II explained — All Citizen Model, corporate NPS, fund choice and minimums
How NPS accounts work in 2026: who can join, Tier I versus Tier II, active and auto choice, fund managers, minimum contributions and how to open or move an account.
The National Pension System (NPS) is a defined-contribution pension: you (and sometimes your employer) put money in, it is invested by a pension fund you choose, and at exit you take part of the corpus as a lump sum and use the rest to buy an annuity. Every subscriber gets a PRAN (Permanent Retirement Account Number). Tier I is the pension account, with withdrawal restrictions until 60. Tier II is an optional, flexible investment account attached to Tier I, with no lock-in. Any Indian citizen, NRI or OCI aged 18 to 85 can join under the All Citizen Model (PFRDA's All Citizen Model page now gives 18–85; older material says 18–70); employees can also join through the employer under the Corporate Model, and government staff are enrolled through the government sector. NPS is regulated by PFRDA under the PFRDA Act, 2013.
Tier I and Tier II side by side
| Feature | Tier I | Tier II |
|---|---|---|
| Purpose | Retirement pension | Voluntary savings |
| Required? | Yes, the base account | Optional; needs an active Tier I |
| Minimum to open | ₹500 (long-standing rule; check your CRA) | Reported as ₹250–₹1,000 depending on source; check your CRA |
| Minimum per year | ₹1,000 to keep the account active (long-standing rule; check your CRA) | No annual minimum reported |
| Withdrawals | Limited partial withdrawals; exit rules at 60 or earlier | Any time |
| At exit | Part annuity required (see exit rules) | No annuity requirement |
| Employer contributions | Yes | No |
PFRDA's current All Citizen Model page does not list these minimums, so confirm them on your central recordkeeping agency (CRA) website before relying on them.
Who can join, and how
- All Citizen Model: open online through a CRA's eNPS service, or through a point of presence (a bank, post office or registered intermediary). You need PAN, Aadhaar or other KYC, and a bank account.
- Corporate Model: your employer registers as a corporate and remits contributions, often as part of a flexible benefits plan.
- Government sector: central government employees who joined from 1 January 2004 (except the armed forces), and employees of most state governments that adopted NPS. Central government staff who opted into UPS have their contributions tracked under UPS; see the UPS guide.
- NPS Vatsalya: an account for minors, opened by a parent; see NPS Vatsalya for children.
Subscribers can continue contributing after 60 and, under the December 2025 exit rules, defer exit up to 85.
Investment choices
You choose a pension fund (fund manager) and an investment choice:
- Active choice: you set the split across asset classes: E (equity), C (corporate bonds) and G (government securities). Equity is capped at 75% in Tier I (100% in Tier II), per PFRDA's circular of 28 August 2026; lower caps can apply at older ages under the tapering rules.
- Auto choice: lifecycle funds that reduce equity as you age. There are typically aggressive, moderate and conservative versions, with different starting equity shares.
- Government sector default: government employees have their own default schemes and, in recent years, have been offered some choice of fund and pattern.
Since PFRDA's circular of 16 September 2025 (in use from October 2025), the Multiple Scheme Framework allows pension funds to offer more than one scheme to non-government subscribers under the same PRAN, so you may see new scheme names in your account. Check each scheme's risk level and charges before switching.
You can change fund manager once a year and asset allocation a limited number of times a year, under PFRDA rules.
How returns work
NPS funds are valued daily. Your account holds units, and their NAV moves with the market. There is no declared or guaranteed rate. NPS Trust publishes scheme NAVs and historical returns by fund manager and asset class. Past returns are only history: an equity fund that returned 12% over one period can return much less over the next. Use the retirement corpus calculator with two or three return assumptions rather than one.
Illustrative projection. ₹5,000 a month for 30 years at an assumed 9% grows to about ₹92 lakh; at an assumed 7% it is about ₹61 lakh. The difference of ₹31 lakh comes only from the assumed return, which is why a single "expected NPS return" figure is misleading.
Costs
NPS charges are low but they exist: the pension fund's investment management fee (deducted from NAV), custodian and regulatory charges, the CRA's account opening and maintenance charges, and point-of-presence charges on contributions made through a bank or intermediary. Details are in the NPS charges guide and the NPS charges calculator.
Common set-up mistakes
- Opening a second PRAN with a new employer instead of moving the existing one. Only one PRAN is allowed.
- Not contributing the annual minimum, which can freeze the Tier I account until you pay the minimum and the penalty.
- Leaving the default fund forever without checking whether its equity share suits your age.
- Treating Tier II like Tier I; Tier II has no annuity requirement but also does not carry the same tax treatment.
Back to the 2026 overview, or see the NPS pension estimate example.
Frequently asked questions
Can I have NPS and EPF together?
Yes. NPS is separate from EPF. Many employees have both, with NPS as a voluntary addition.
Can I withdraw from Tier I before 60?
Partial withdrawals are allowed for specified purposes, capped at 25% of your own contributions and limited in number. A full premature exit is possible but most of the corpus must then buy an annuity if it is above ₹5 lakh.
Is Tier II worth opening?
Tier II is a low-cost way to invest in the same funds with full liquidity. It is not a pension product, so compare it with other investment options you already use.
Which fund manager is best?
We do not rank fund managers. Compare long-term returns, charges and service on NPS Trust's website, and remember that past returns do not predict future ones.
Official sources
- PFRDA — NPS regulations, All Citizen Model eligibility and circulars
- NPS Trust — NAVs, returns and fund manager disclosures
- Department of Financial Services — government pension policy
