India is ageing steadily, and the resulting implications for household finances remain largely ignored, whether deliberately or otherwise. The population aged 60 and above is already estimated at over
14 crore and is projected to rise sharply in the coming decades. Longer life expectancy is indeed a sign of progress, but it also means that retirement today can span 20 to 25 years or more. For many Indians, however, retirement planning still begins late, if at all. With rising healthcare costs, limited social security coverage and the gradual erosion of traditional family support systems, retirement risk is becoming a mainstream financial concern.
Against this backdrop, pension planning must move from being an afterthought to a core part of financial decision-making. Among these available retirement instruments, the National Pension System merits serious consideration for Indian masses.
An evolving pension framework
The National Pension System has expanded well beyond its origins as a scheme primarily for government employees. Today, it has over two crore subscribers across government, corporate and individual categories. Combined assets under management under NPS and the Atal Pension Yojana have crossed Rs 16 lakh crore, making it one of India’s largest long-term savings pools.
This scale is important. A large, regulated retirement system enables better governance, professional fund management and cost efficiency. Equally significant is the pace at which NPS has evolved.
Over the past few years, the Pension Fund Regulatory and Development Authority has introduced several reforms to improve flexibility for subscribers. These include increasing the maximum age to remain invested, enabling phased withdrawals after retirement, and reducing the mandatory annuity requirement for non-government subscribers. Collectively, these changes have made NPS more aligned with the realities of modern working lives and retirement needs.
Why NPS deserves attention today
There are three reasons why NPS deserves a place in an individual’s retirement portfolio.
The first is long-term return potential. NPS is a market-linked, defined contribution system, where subscribers can allocate investments across equities, corporate bonds and government securities through Active Choice or lifecycle-based options. Over long periods, equity-oriented NPS funds have delivered competitive returns reflective of broader market performance, while debt allocations have provided stability. Importantly, under the new Multiple Scheme Framework introduced by the Pension Fund Regulatory and Development Authority, non-government subscribers can now choose specially designed schemes that allow up to 100 percent equity exposure, expanding growth potential for younger investors with long horizons and a higher risk appetite.
The second is its long-term focus. NPS is designed to encourage disciplined, long-horizon savings while limiting premature withdrawals. While liquidity has improved through partial withdrawal provisions and phased exit options, the system continues to prioritise long-term accumulation. Recent reforms allow eligible non-government subscribers to withdraw up to 80 percent of their corpus at retirement, with a reduced mandatory annuity requirement, striking a better balance between flexibility and income security over the long term.
The third is tax efficiency. Under the old tax regime, NPS offers an additional deduction of up to ₹50,000 under Section 80CCD(1B), over and above the ₹1.5 lakh limit under Section 80C. At the time of retirement, up to 60 percent of the accumulated corpus can be withdrawn as a lump sum and is fully tax free under current income-tax rules. This makes NPS one of the few long-term savings instruments in India where both contributions and a substantial portion of withdrawals enjoy favourable tax treatment, provided the investor remains disciplined until retirement.
Using NPS effectively
NPS works best when viewed as the foundation of a retirement strategy rather than a standalone investment. Younger investors can afford higher equity exposure within NPS to benefit from long-term compounding. As retirement approaches, allocations can gradually shift toward corporate bonds and government securities to reduce volatility and preserve capital.
Consistency matters more than timing, as it is said time in the market is important timing in the market. Regular contributions, automated investments and periodic rebalancing within the NPS framework can meaningfully improve retirement outcomes over time. Importantly, the additional tax deduction under Section 80CCD(1B) should be seen as an opportunity to build a larger retirement corpus, not merely as a year-end tax-saving exercise.
A timely choice
Retirement planning is ultimately about foresight. With an ageing population, rising longevity and increasing post-retirement expenses, under-prepared people will place growing pressure on households and the broader economy. NPS, with its scale, regulatory oversight, improving flexibility and market-linked growth potential, offers a credible and cost-effective pathway to retirement security.
For Indian savers, the question is no longer whether retirement planning is necessary, but how early it should begin. In that journey, NPS increasingly deserves a permanent place in the portfolio.
The views expressed in this article are those of the author and do not represent the stand of this publication.
