Published on 13 Feb 202510:40AM

7 Common Myths About the National Pension System (NPS)

7 Common Myths About the National Pension System (NPS)

The National Pension System (NPS) is a fantastic tool for securing a financially stable retirement. However, a host of myths surround it, keeping many from taking advantage of its benefits. Let’s uncover the truth about NPS and set the record straight.

1. Is NPS Only for Government Employees?

Myth: NPS is only available to government employees.
Reality: Absolutely not! While NPS was initially designed for government employees, it has been opened to all Indian citizens. Whether you’re a salaried employee, a self-employed professional, a business owner, or even a foreign national residing in India, you can invest in NPS.

Why it matters: NPS provides a structured and tax-efficient way to save for retirement, regardless of your profession or income source.

2. Can I Deduct ₹50,000 Over and Above Section 80C?

Myth: The ₹50,000 deduction under NPS is available only under Section 80CCD(1b).
Reality: This additional ₹50,000 deduction is a significant tax-saving opportunity! It is available over and above the ₹1.5 lakh deduction under Section 80C, making your total possible deduction ₹2 lakh.

Bonus Tip: If your employer contributes to your NPS account, you can claim an additional deduction of up to 14% of your salary (basic + DA) under Section 80CCD(2).

3. Is the Maximum Contribution to NPS ₹1.5 Lakh a Year?

Myth: NPS contributions are capped at ₹1.5 lakh annually.
Reality: There’s no upper limit on how much you can contribute to your NPS account. While the tax benefits are capped, contributing beyond ₹1.5 lakh can significantly boost your retirement corpus and monthly pension.

4. Should I Rely Solely on My Children for Financial Support During Retirement?

Myth: My children will take care of me in old age.
Reality: While children often support their parents, societal trends are shifting. Nuclear families, migration, and career priorities mean you cannot solely rely on children for financial support.

Solution: Regular contributions in NPS ensures financial independence during retirement, enabling you to meet your needs without depending on others.

5. Does Investment in NPS Give Low Returns?

Myth: NPS returns are lower compared to other investment options.
Reality: NPS has proven to deliver competitive and even impressive returns. For instance, UTI Pension Fund Scheme (E Tier I):

Performance as of November 14, 2024:

  • 1 Year: 22.75%
  • 3 Years: 17.15% (Annualized)
  • 5 Years: 17.98% (Annualized)
  • 7 Years: 14.53% (Annualized)
  • 10 Years: 13.31% (Annualized)

This highlights consistent performance over both short and long-term periods.

* All investment instrument in NPS are market linked and hence the returns are also market linked

6. Can I Change My Pension Fund Manager?

Myth: Subscribers can’t change their Pension Fund Manager (PFM).
Reality: Subscribers have the flexibility to change their Pension Fund Manager once a year for both Tier I and Tier II accounts.

Why This Matters: Changing your PFM lets you optimise your returns by selecting a fund manager with a strong performance record.

7. Can I Access My Funds Before Retirement?

Myth: NPS contributions can only be accessed upon retirement.
Reality: Partial withdrawals are allowed under specific circumstances, such as:

  • Children's higher education
  • Treatment of specified illness
  • Buying first home
  • Marriage purpose
  • Starting any new venture

Key Features of NPS Withdrawals:

  • You can withdraw up to 25% of your contributions after three years of account activation.
  • Retirement age flexibility allows you to extend contributions until age 70.

Conclusion: Don’t Let Myths Hold You Back from Investing in NPS

The National Pension System is a powerful financial tool for securing a worry-free retirement. By debunking these myths, it’s clear that NPS offers:

  • Broad accessibility.
  • Attractive tax-saving opportunities.
  • Competitive returns and investment flexibility.
  • Financial independence and peace of mind.

Ready to start your NPS journey? Explore the benefits with trusted providers like UTI Pension Fund, Click here - https://www.utipension.com/open-nps-account and embrace a secure, prosperous retirement.

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