When it comes to planning for retirement, long-term consistency matters more than short-term intensity. The National Pension System (NPS) is designed to reward discipline and regular contributions over time. An NPS account not only helps you build a substantial retirement corpus but also offers tax benefits and the flexibility to choose how your funds are invested. However, the true value of NPS is unlocked when you stay active and contribute regularly.
In this post, we explore why staying active in your NPS account and maintaining regular contributions are essential, not just for wealth accumulation but also for enjoying the full range of benefits the system offers.
Understanding the NPS Account
The National Pension System is a government-backed, voluntary retirement savings scheme open to Indian citizens (residents and NRIs) aged 18 to 70. It allows investors to contribute regularly during their working years and withdraw a part of the corpus as a lump sum at retirement, with the remaining portion used to purchase an annuity for a steady income.
NPS offers two types of accounts:
- Tier I (mandatory for retirement benefits) – Long-term, tax-saving pension account with withdrawal restrictions.
- Tier II (optional) – A voluntary savings facility with flexible withdrawals but no tax benefits.
What Does It Mean to Stay Active in an NPS Account?
Staying active in your NPS account means:
- Making the minimum annual contribution of ₹1,000 to keep the account in good standing.
- Regularly contributing based on your income and retirement goals.
- Periodically reviewing your investment mix and updating asset allocation or fund managers if needed.
Failing to make the minimum contribution renders the account inactive, which limits the ability to make further contributions or avail tax benefits until reactivation.
Benefits of Contributing Regularly to Your NPS Account
1. Power of Compounding Over the Long Term
The earlier and more consistently you invest in NPS, the greater the compounding effect. Even small but regular contributions can grow into a significant corpus by the time you retire, thanks to the cumulative returns from equity and debt market investments.
Example: A monthly contribution of ₹5,000 starting at age 30 can grow into a retirement corpus of ₹1 crore or more by age 60, assuming a moderate annual return of 10%. Missing contributions can reduce this potential significantly.
2. Maintaining Active Account Status
To keep your Tier I NPS account active, a minimum annual contribution of ₹1,000 is required. An inactive account:
- Restricts transactions and fund management
- Disqualifies you from claiming tax benefits
- Requires a reactivation process involving paperwork and penalties
By contributing regularly—even if just the minimum—you ensure your account remains fully functional, avoiding administrative hassles later.
3. Maximising Tax Benefits
Regular contributions help you make the most of the tax-saving features of NPS:
- Under Section 80CCD(1): Deduction up to ₹1.5 lakh (including other Section 80C investments)
- Under Section 80CCD(1B): Additional ₹50,000 exclusively for NPS contributions
- Under Section 80CCD(2): Employer contribution up to 10% of salary is deductible (up to ₹7.5 lakh cap when clubbed with PF and gratuity)
Contributing sporadically may result in under-utilisation of these benefits, especially the exclusive ₹50,000 deduction under Section 80CCD(1B).
4. Rupee Cost Averaging Advantage
NPS contributions are invested in a mix of equities, government bonds, and corporate debt. By contributing regularly—monthly or quarterly—you average out the cost of investment over market highs and lows. This strategy, known as rupee cost averaging, reduces the impact of market volatility on your corpus.
5. Better Retirement Planning
When you contribute regularly, you are more likely to track your fund’s performance, adjust your asset allocation based on age or risk profile, and plan your retirement more realistically. It helps answer questions like:
- Am I on track to achieve my target corpus?
- Should I increase my contribution due to a salary hike?
- Do I need to shift from equity to debt as I near retirement?
Staying active and engaged empowers you to make informed adjustments, improving your retirement readiness.
6. Eligibility for Partial Withdrawals
Under specific conditions (such as higher education, marriage of children, house purchase, or critical illness), partial withdrawals of up to 25% of your own contributions are allowed from Tier I accounts after the completion of three full financial years of joining. However, these benefits are typically available only to active contributors.
Regular contributions ensure you’re eligible to use these provisions in emergencies or life milestones.
7. Higher Annuity Income Post-Retirement
At retirement, 60% of your NPS corpus can be withdrawn as a lump sum, while 40% must be used to buy an annuity. A larger, well-grown corpus from regular contributions translates to:
- Higher monthly annuity income
- Greater financial independence post-retirement
- Flexibility to choose from various annuity options based on your needs (with or without return of purchase price, for spouse, etc.)
How ICICI Bank Supports Your NPS Journey
As a Point of Presence (POP) registered with the PFRDA, ICICI Bank makes it easy to:
- Open an NPS account online or at branches
- Set up auto-debit for regular contributions
- Access statements and performance reports
- Reactivate inactive accounts if needed
- Get guidance on asset allocation and tax planning
Whether you’re a salaried individual, self-employed professional, or business owner, ICICI Bank helps you stay on track with your long-term retirement goals through NPS.
Tips to Stay Active and Contribute Regularly
- Set up auto-debit from your bank account to ensure timely contributions.
- Review your fund performance once a year and adjust allocations if necessary.
- Increase contributions in line with income growth to build a larger corpus.
- Utilise bonuses or windfalls to make additional contributions and claim higher tax deductions.
- Use reminders or mobile apps to stay on top of your NPS contribution online.
Conclusion
An NPS account is a structured and efficient way to plan your retirement. But the benefits of NPS don’t come automatically. They require consistency and active participation.
By contributing regularly, you ensure your account remains active, your retirement goals stay within reach, and you fully capitalise on the tax and investment advantages offered by the scheme. With the support of institutions like ICICI Bank, maintaining and growing your NPS investment becomes even more seamless.
So, if you haven’t already, make your NPS account a monthly habit. Because when it comes to retirement, consistency is the real compounder.
ThePrint BrandIt content is a paid-for, sponsored article. Journalists of ThePrint are not involved in reporting or writing it.