Is NPS Losing Its Shine? Why India’s Biggest Pension Scheme Is Struggling to Attract Subscribers

New Delhi: The National Pension System (NPS), once considered the backbone of retirement planning in India, is now facing serious challenges. Recent reports and market analyses reveal that changing tax rules, the rise of more attractive investment products, strict withdrawal conditions, and the absence of guaranteed returns are pushing both government and private sector employees to reconsider their retirement options.

For many, the old pension scheme (OPS) or other market-linked investments appear to be more promising, leaving NPS struggling to retain its appeal.

Declining Interest in NPS

NPS was introduced as a long-term retirement solution offering market-linked returns and partial tax benefits. However, the scheme’s rigid structure and lack of guaranteed income after retirement have made it less attractive, especially when compared to alternatives like mutual funds, insurance-linked pension plans, or even traditional government pension schemes.

Employees in the private sector often find themselves drawn to investment avenues such as equity mutual funds, public provident fund (PPF), and National Savings Certificates (NSC), which not only provide more flexibility but also better tax efficiency. On the other hand, many government employees argue that OPS, with its assured monthly pension, provides greater security and peace of mind compared to NPS.

Key Reasons Behind the Decline

1. Changing Tax Rules:
   The frequent changes in income tax regulations have created uncertainty around NPS benefits. While the scheme does offer tax deductions under Section 80C and 80CCD, withdrawals and annuities are subject to taxation, reducing the overall post-retirement benefit.

2. Rigid Withdrawal Policies:
   NPS allows only limited partial withdrawals before retirement and requires a compulsory purchase of annuity after maturity. This inflexibility often discourages younger investors who prefer liquidity in case of emergencies.

3. No Guaranteed Returns:
   Unlike OPS or fixed deposits, NPS does not promise fixed returns. Since it is linked to market performance, subscribers face the risk of lower payouts if markets underperform, making it less reliable as a retirement safety net.

4. Attractive Alternatives in the Market:
   Over the past decade, mutual funds, systematic investment plans (SIPs), and other retirement-focused financial products have offered higher returns, luring away potential NPS subscribers.

Government’s New Move

In a recent development, the central government announced a one-time switch facility for employees who had earlier opted for the Unified Pension Scheme (UPS). According to an office memorandum issued by the Department of Financial Services under the Ministry of Finance, such employees will be allowed to move to NPS.

The facility can be availed at any time up to one year before the date of retirement, or in the case of voluntary retirement, up to three months prior to the expected date of exit. This move is seen as an attempt to provide more flexibility and encourage participation in NPS.

The Bigger Question: Future of NPS

While the government continues to promote NPS as the country’s primary retirement solution, the growing interest in OPS and alternative investments highlights a trust deficit. Experts believe that unless NPS offers better post-retirement income assurance, simpler withdrawal rules, and more tax-friendly benefits, it will struggle to remain relevant in the long run.

For India’s working population, retirement planning is no longer about just saving—it’s about ensuring stability, flexibility, and predictable income. Unless reforms address these concerns, NPS may continue to lose ground despite government efforts.