The NPS across Sectors and NPS Vatsalya

The NPS began as a scheme for one group, new Central Government employees, and expanded step by step to State Government employees, every citizen, corporate employees and, since 2024, children. Each group joins through a model or sector with its own rules on contributions and choices, while all share the same architecture under the PFRDA Act. This note explains the sectors and the scheme for minors, NPS Vatsalya.

1. Central Government Sector

• Mandatory: for all Central Government employees recruited on or after 1 January 2004, except the armed forces, who remain under the defined benefit pension.
• Contributions: 10 per cent from the employee and 14 per cent from the Government, of basic pay plus dearness allowance.
• Rules: governed by the Central Civil Services (Implementation of National Pension System) Rules, 2021, which deal with matters such as contributions, benefits on death or disability in service, and delays in contributions.
• Unified Pension Scheme: since 1 April 2025, employees covered by the NPS may opt for the UPS, which gives an assured payout based on the last pay drawn.
• Autonomous bodies: many central autonomous bodies follow the same pattern for their new recruits.

2. State Government Sector

• Adoption by States: pensions of State employees are a State matter, so each State chose whether to adopt the NPS. Almost all States adopted it for new recruits from various dates after 2004; West Bengal did not.
• Section 12(4): State Government employees are outside the Act unless the State extends the NPS to them by notification, which preserves the States' control over their employees' pensions.
• Return to the Old Pension Scheme: from 2022, some States, including Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh, announced a return to the Old Pension Scheme and sought refunds of the accumulated NPS corpus, raising difficult legal and fiscal questions.

3. All Citizen Model

• Opened: to all citizens from 1 May 2009, on a voluntary basis.
• Eligibility: citizens of India, resident or non-resident, and Overseas Citizens of India, aged 18 to 70 at the time of joining.
• Contributions: voluntary, with a minimum of ₹1,000 a year in Tier I.
• Choices: full choice of pension fund and of active or auto choice, and access to the Multiple Scheme Framework from 1 October 2025.

4. Corporate Model

• Introduced: from December 2011, for employees of companies and other organisations.
• How it works: the employer registers with a point of presence and enrols employees; the employer, employee or both contribute.
• Flexibility: the employer may let employees choose their pension fund and investment option, or select them centrally.
• Attraction: employer contributions are deductible, and are not taxed in the employee's hands within the limits of the income tax law, making the corporate NPS a tax-efficient retirement benefit.

5. Schemes for the Unorganised Sector

• NPS Lite and Swavalamban: a low-cost version of the NPS for the economically weaker sections, launched in 2010, with a Government co-contribution under the Swavalamban scheme. It has since been closed to new subscribers and largely migrated to other schemes.
• Atal Pension Yojana: launched in 2015 for unorganised sector workers, offering a guaranteed minimum pension of ₹1,000 to ₹5,000 a month from age sixty. It is administered by PFRDA through the NPS architecture.
• Gig and platform workers: the Multiple Scheme Framework allows pension funds to design schemes for workers in the digital and platform economy.

6. NPS Vatsalya

Introduction

NPS Vatsalya was announced in the Union Budget 2024-25 and launched on 18 September 2024. It lets parents and guardians start saving for a child's retirement from birth, so that compounding operates over a much longer period. PFRDA notified revised NPS Vatsalya Scheme Guidelines in January 2026.

Main features under the revised guidelines

• Subscriber: a minor below eighteen. The account is opened in the minor's name with a PRAN, and is operated by the guardian; the minor is the sole beneficiary.
• Contributions: a minimum of ₹250 at opening and in each year, with no upper limit. Contributions may come from parents, guardians, relatives and friends. The minimum was ₹1,000 when the scheme was launched.
• Investment: through PFRDA-registered pension funds, with a substantial equity component, generally between 50 and 75 per cent.
• Partial withdrawal: after three years, up to 25 per cent of contributions (excluding returns), for education, treatment of specified illnesses, or disability above 75 per cent; two withdrawals before eighteen and two more between eighteen and twenty-one.
• At eighteen: fresh KYC in the subscriber's own name. The subscriber may continue in NPS Vatsalya for up to three more years, move to the regular NPS, or exit.
• Exit: up to 80 per cent as a lump sum with at least 20 per cent annuitised; the whole corpus may be withdrawn if it is ₹8 lakh or less.
• At twenty-one: if no choice is made, the account moves to a higher-risk, equity-oriented scheme under the regular NPS.
• Death: if the minor dies, the corpus is paid to the guardian; if the guardian dies, another guardian is registered.

7. One Architecture, Many Doors

Whatever the sector, the subscriber's account sits in the same system: one PRAN, the same CRAs, pension funds, Trustee Bank and custodian, and the same regulator. Portability under Section 20(2) means a person can move from Vatsalya to the All Citizen model, to a corporate employer and to a Government job, keeping the same account throughout.

8. Related Topics and Provisions

• Extent and application of the Act (Section 12)
• The Atal Pension Yojana
• The Unified Pension Scheme
• NPS Lite and Swavalamban
• Old Pension Scheme and NPS: the debate
• Central Civil Services (Implementation of NPS) Rules, 2021