Can unemployed individuals open accounts under National Pension System? Check details

 

Unemployed individuals in India can open and contribute to an NPS account without employment status affecting their eligibility, provided they have the necessary funds.

The National Pension System (NPS) in India allows individuals, regardless of employment status, to open and contribute to accounts. The NPS serves as an inclusive retirement tool for diverse groups, including government workers, corporate employees, and self-employed individuals. It is also accessible to those without current employment.

Can unemployed individuals open accounts under National Pension System? The answer is yes.  Unemployed individuals are eligible to open accounts under the National Pension System (NPS). Despite lacking a current source of income, individuals can establish an NPS account using existing savings. In contrast to the Employee Provident Fund (EPF), which ceases upon leaving a job, individuals can continue their NPS account under the all-citizen model.

Ranbheer Singh Dhariwal, CEO of Max Life Pension Fund, said: “Employment status is not a requirement for opening an NPS account. An individual can contribute to NPS as long as they have funds to do so.” The system requires a minimum annual contribution of Rs 1,000, with each individual contribution needing to be at least Rs 500. This flexibility enables unemployed individuals to maintain an account, offering a strategic avenue for retirement savings without the necessity of employment.

Third-party deposits

Regarding contributions, the NPS enforcing strict guidelines against third-party deposits to safeguard against fraudulent activities. Dhariwal states, “No, third-party deposits are not permitted in NPS as per PMLA (Prevention of Money Laundering Act) guidelines. This restriction is in place to reduce the risk of fraudulent transactions.” Each account holder is required to use their own bank account for contributions, irrespective of their employment status, ensuring the integrity of individual accounts.

However, there is some allowance for familial involvement in contributions. While the NPS generally prohibits third-party payments, family members are not classified as third parties. Bertram D'souza, Chief Product & Innovation Officer, Protean eGov Technologies Ltd, said: “Husband or family member can contribute on her behalf in NPS. There is no limit on such contributions.” Nonetheless, Dhariwal notes, “The contribution can come from the wife’s (subscriber’s) source of funds only, as per KYC/AML guidelines.” This condition ensures contributions are made within regulated financial boundaries, acknowledging familial support while maintaining compliance. 

Entities monitoring NPS accounts must ensure adherence to regulatory guidelines as stipulated by the Pension Fund Regulatory and Development Authority (PFRDA). A PFRDA circular stated: “Reporting entity shall identify the source of contribution and ensure that the contribution is being done through the subscriber’s source of funds.” 

This diligence is crucial for maintaining account integrity. Ongoing due diligence by reporting entities not only upholds the trust in the system but also reinforces the NPS framework as a reliable retirement planning option for individuals, regardless of their employment status.

NPS returns

As of February 2025, the NPS reported a one-year return of approximately 10.89% and a three-year return of 13.71% from equities. With the elderly population projected to increase to around 20% by 2050, this scheme addresses the growing need for long-term financial planning. Such demographic changes highlight the importance of having flexible savings options like the NPS available to all citizens, regardless of their employment situation.

The National Pension System (NPS) is a government-monitored pension scheme with defined contributions that allows individuals to save for their retirement. Managed by the Pension Fund Regulatory and Development Authority (PFRDA), individuals have the flexibility to contribute as per their choice. However, a minimum annual contribution is required to keep their Tier I NPS account active. Upon retirement, the accumulated savings are utilized to provide a steady income.

Contributions to NPS qualify for tax deductions under Sections 80CCD (1), 80CCD (1B), and 80CCD (2) of the Income Tax Act, based on the tax regime selected by the individual in the financial year.

During NPS account maturity, 60% of the lump sum withdrawals are tax-exempt, while the remaining 40% must be used to purchase annuity from life insurance companies.