The NPS is a voluntary, market-linked defined contribution scheme, open to all citizens including private sector employees.
On the other hand, EPFO operates a defined benefit system for salaried employees, with contributions channelled into the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS).
A recent comparative note by the Pension Fund Regulatory and Development Authority (PFRDA) outlines key
Eligibility and participation
EPFO coverage is mandatory for employees earning up to ₹15,000 per month.
For those who joined the workforce after 2014 with a salary exceeding ₹15,000, contributions under the Employees’ Pension Scheme (EPS) are no longer applicable.
NPS, on the other hand, is voluntary and open to all citizens of India and Overseas Citizens of India
Contributions and tax treatment
| Feature | EPFO | NPS |
| Employee Contribution | 12% of salary to EPF | Voluntary; minimum ₹1,000/year |
| Employer Contribution | 12%: 3.67% to EPF, 8.33% to EPS | Voluntary; both employee and employer may contribute under Corporate NPS |
| Govt. Contribution | 1.16% to EPS | Not applicable |
| Tax Benefits | 10% employee + 10% employer (Old regime) | Same as left |
| 14% employer (New regime) |
Investment approach
EPFO invests primarily in debt. According to the note, 90% of EPFO's corpus is currently invested in debt instruments, including government securities and corporate bonds, while 10% is in equities via ETFs.
NPS offers two investment options:
- Auto choice: Age-based allocation across equity, debt, and government securities.
- Active
choice: Individuals can choose their allocation up to 75% in equities, and 100% in government or corporate debt.
Return trends and pension formula
EPF has delivered an average return of 8.65% since FY2001-02.
EPS, which provides a fixed pension, calculates benefits using the formula:
Pension = (Pensionable Salary × Service Years) ÷ 70
(With a maximum pension of ₹7,500/month for salaries capped at ₹15,000)
NPS is market-driven. Average historical returns (as per PFRDA) are:
9.5% under the Central
11% under the moderate lifecycle fund (equity exposure starting at 50%)
At retirement, a minimum of 40% of the NPS corpus must be used to purchase an annuity, which provides monthly pension income.
Retirement benefit scenario (PFRDA illustration)
For an employee earning ₹50,000/month, contributing from 1995 to 2024:
| Metric | EPFO | NPS @ 9.5% (Govt. Scheme) | NPS @ 11% (Moderate Lifecycle Fund) |
| Lump Sum Corpus | ₹1.84 crore (EPF) | ₹2.23 crore | ₹2.99 crore |
| Monthly Pension / Annuity | ₹3,933 (EPS) | ₹50,352 (no ROP) | ₹66,582 (no ROP) |
| ₹45,181 (with ROP) | ₹59,744 (with ROP) | ||
| ROP = Return of Purchase Price | Fixed as per formula | Based on 7.4% (no ROP) or 6.64% (ROP) annuity rates | Same as left |
(Note: ROP refers to annuity options where the purchase price is returned to nominee upon subscriber’s death.)
If the same EPF corpus had earned 9.5% annually, the projected
