National Pension Scheme

The Government of India launched the National Pension Scheme as a good investment option for the retired personnel who want to invest their money safely and get attractive returns. It is open to everyone who fall within the bracket of 18-60 years of age.

Overview of National Pension Scheme (NPS)

NPS is a voluntary contribution scheme started by the Indian government for the retired employees, and it also offers varied investment options to the employees for tax benefits. The primary aim of the scheme is to reduce the government liabilities regarding pension and to ensure that the citizens earn a stable income post retirement. It also enables individuals to earn decent returns on the investments made by them.

The NPS was introduced in 2004 and was targeted at the newly employed individuals of the central government excluding the armed forces. However, since 2009, the NPS was opened to every Indian citizen who comes between the age bracket of 18-60 years. Unique Permanent Retirement Account Numbers or PRANs are allocated to every subscriber of the NPS Scheme during their joining. The subscribers of the scheme get two accounts assigned, which can be accessed anytime.

National Pension System

On 1st May 2009, the Government of India introduced the National Pension System (NPS) for its citizens. It is regulated through the Pension Fund Regulatory and Development Authority (PFRDA), which is a nodal authority. National Pension System Trust or NPST is the caretaker of all the assets under NPS, and the PFRDA appointed it.

NSDL CRA

PFRDA appointed National Securities Depository Limited or NSDL as the Central Record-Keeping Agency. The CRA has responsibilities of administration, customer services and record keeping for all the NPS subscribers. The CRA allocates the Permanent Retirement Account Number (PRAN) to the subscribers of NPS.

NPS POP-Service Providers

PFRDA designated the Department of Posts (DOP) as one of the Points of Presence (POP). The DOPs offer services to the subscribers of NPS via POP service providers (POP-SPs). So, all the Head Post Offices in the country are POP-SPs. The services provided through the Department of Posts include the opening of NPS accounts, handling contributions to the accounts, and managing the exit and claim withdrawal requests. Several public and private sector banks and financial institutions also work as POP-SPs. The authorized branches of POP work as the collection points.

Objectives of NPS

The purpose of launching NPS was to promote the efficient and sustainable voluntary pension contribution system in India. It provides income to the aged and retired people. It also offers regulated and secured returns pertaining to market over a long period, thus, ensuring security to the aged citizens of India.

Types of NPS Accounts

The subscribers are issued a Permanent Retirement Account Number (PRAN), which remains constant throughout the scheme. The NPS accounts are categorized as Tier-I and Tier-II NPS as per the norms of withdrawal.

a. NPS Tier-I Account

It is a non-withdrawal retirement product, which is rigid with exit regulations and claim. It falls under E-E-T or Exempt-Exempt-Tax regime due to which, the contributions and profits made are exempted from tax. However, the withdrawal on the entire corpus is liable to tax payment. It consists of two distinct phases: Accumulation Phase - a period of regular contribution; and Distribution Phase - a period of getting the pension from the accumulated account. The monthly contributions are allowed for a maximum of Rs 1.5 Lakh deduction under Section-80C. A further deduction of Rs 50,000 is allowed under Section-80CCD (1B).

In this account, only 25% withdrawal is allowed from the accumulated corpus of NPS after three years of opening the account. Withdrawal is permitted explicitly for emergencies or other purposes, such as child's education, marriage, buying a house, etc. In Budget 2018, the entry age for NPS has been extended to 65 years; along with that, 40% of the withdrawal value has been made tax-free even for non-employees. Premature withdrawals can be made only after three years of investing.

b. NPS Tier-II Account

It works like a voluntary savings account. The subscribers can withdraw the amount from this account and make contributions any time without any penalty. There are no tax benefits provided on this account. The funds can be transferred from Tier II account to Tier-I account. There are no additional annual account maintenance charges levied. There is no minimum balance required to maintain the account. NRIs cannot open Tier II accounts. Tier-II accounts can only be opened if the individual has an existing Tier-I account and a PRAN. The government introduced Tier-II NPS accounts in 2009 and offered flexibility. Tier-II accounts provide an option for the investor to invest either in government bonds, fixed income instruments, or equity funds. Unlike the Tier-I accounts, NPS Tier-II accounts don't have locking periods.

Swavalamban Yojana Account

Swavalamban Yojana was a financial inclusion scheme, launched for the economically weaker sections of the society. It applied to all the employees who belong to the unorganized sector of employment. The government made contributions of Rs.1000 for Swavalamban accounts during the first four years after enrollment. Then, the Swavalamban Yojana was replaced by the Atal Pension Yojna.

How Does NPS Work?

• After enrolment in NPS, a PRAN is allocated to the NPS subscriber. The notification of PRAN is sent to the subscriber through an SMS and email alerts by the NSDL-CRA.
• The retirement corpus is created by regular contributions of the subscriber to the NPS account till the time of retirement.
• The subscriber receives the entire corpus after leaving the scheme or after retirement. A portion of the corpus is invested in an annuity to receive a monthly pension during the retirement period while exiting the plan.

Different Sectors in NPS

a. Government sector - The Central GOI launched the NPS on 1st January 2004 for all the employees of Central Autonomous Bodies (CAB) except the armed forces. Various State Governments and Autonomous Bodies (SAB) also adopted the NPS. The SAB and CAB employees contribute to the NPS from their monthly salary, and the same amount of contribution is made from the employer's side as well.

b. Private sector - The "NPS Corporate sector model" and "All Citizens of India sector model" are a part of the private sector. The former is implemented for the organizations and their employees, while the latter is applied for any individual who doesn't belong to any of the sectors as mentioned above.

Highlights of NPS

The salient attributes of the National Pension Scheme are:

a. The NPS is eligible for all the Indian citizens between the ages of 18-65. Subscribers should make a minimum contribution of Rs. 500 while opening the account.

b. NPS offers transparency to subscribers and is a low-cost option of investment. The subscribers can choose their pension fund schemes after checking the investment amount.

c. The account matures when the subscriber retires.

d. 60% of the corpus is withdrawn on maturity, and the remaining 40% is used for purchasing annuities.

e. Contributions made to NPS are eligible for tax deductions under Section-80C of the Income Tax Act.

f. The NPS application process is straightforward as the subscriber needs to open an account at the respective post office and acquire a PRAN.

g. Since the employees are allocated a unique PRAN, it is integrated all across the country, irrespective of the state and city where a particular subscriber is working.

h. The subscribers can access the NPS details online through the portal.

i. The subscribers can invest money in NPS either through Pension Fund Managers who allocate the amount in corpus and equity in some proportions for good returns or through Customer Service Providers.

j. The NPS also provides the flexibility to the subscribers to switch between fund managers and investment options.

k. The subscriber gets the flexibility to choose and change the contribution amount along with the contribution frequency.

l. The NPS is a low-cost investment option with extremely low management charges.

m. Though premature withdrawal from the NPS is not allowed, there are some situations where it can be availed. The rules for withdrawal vary, depending on the type of NPS account the subscriber is holding.

Withdrawal from NPS Accounts

The PFRDA permits partial funds withdrawal under the following conditions:

a. Partial withdrawal of funds is only allowed for subscribers who have been contributing a certain proportion of their income towards the NPS scheme since the last three consecutive years.

b. Partial withdrawal is only allowed in cases of serious illnesses, for higher education, for the marriage of the subscriber's child or for buying a house.

c. The PFRDA has given a list of severe illnesses on their site, for which partial withdrawal of NPS funds is permitted. These medical conditions are paralysis, stroke, heart attack, heart surgery, kidney failure, cancer, multiple sclerosis, etc.

Recently, the PFRDA has announced partial withdrawal for the subscribers who want to start their own business or wish to pursue higher education to improve their employability.

Benefits Offered by NPS

NPS provides the following benefits to the subscribers:

1. The pension account in NPS can be opened at a reasonable cost.

2. It includes tax benefits of up to Rs.1.5 lakh as per the Income Tax Act, 1961.

3. It is easily transferable.

4. Experienced pension fund managers or PFMs expertly manage the investments in NPS.

5. It is regulated by the PFRDA, which was formed through a legislative act.

6. The NPS is open to every citizen of India and is entirely voluntary.

7. The process of application is extremely convenient.

8. The subscriber can access the NPS account from any location and at any time.

9. Since the PFRDA regulates the NPS, there is strict adherence to the standards. The fund managers are also evaluated for their performance.

Eligibility Criteria of NPS

Any Indian citizen (Resident Indians or RIs and Non-Resident Indians or NRIs) between the ages of 18-60 years are eligible to open an NPS account. The Hindu Undivided Families (HUFs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs) are not eligible to open an NPS account. To subscribe to NPS, the following eligibility criteria should be met:

a. The subscriber should be at least 18 years of age and not more than 65 years of age during submission of the application at the authorized POP.

b. The applicant must be a sane person.

c. The applicant should be a first-time NPS subscriber.

d. The applicant must abide by the KYC rules set by PFRDA.

Following are the individuals, who are not eligible to avail the NPS:

a. The individuals who don't have sound mental health.

b. The individuals who have already had an account with NPS previously

c. An undischarged insolvent, who is unable to pay his debts.

How to Open an NPS Account?

Individuals can visit a POP-SP or log in to the NPS website and open a pension account under NPS using Aadhaar number, PAN, and bank account details. An individual can open only a single NPS account and cannot open it jointly with the spouse/children.

Opening NPS Accounts Through POP-SP:

1. The first step is to get a PRAN. Submit the duly-filled and signed Permanent Retirement Account Number application form along with the identity and address proof. The form should be submitted with the applicant's signature, photo, and the scheme preference details.

2. The form should be submitted to the nearest POP-SP.

3. After the successful submission and verification of the form, the PRAN card will be dispatched to the address of the applicant through CRA.

4. The status of the application can be checked online through the acknowledgment slip number. The number has to be entered on the CRA-NSDL website (https://cra-nsdl.com/CRA/pranCardStatusInput.do).

5. A minimum contribution of Rs.500 is compulsory to pay during the registration. The contribution can be made along with the submission of a duly-filled NPS Contribution Instruction Slip (NCIS), containing the details of payment made towards the PRAN account.

Opening NPS Accounts Through eNPS

1. PRAN account can be registered using either Aadhaar or PAN on the NPS portal.

2. The mandatory details have to be filled online and the scanned signature and photograph of the applicant should be uploaded on the website.

3. For registering with the Aadhaar number, the KYC verification process would be authenticated using an OTP sent on the registered mobile number.

4. The NPS website will direct the applicant towards a payment gateway for making a contribution in the NPS account using a debit card, credit card, or net banking.

5. In case of registration using PAN, the KYC verification will be done through the bank that the applicant has chosen for the registration process. The applicant should have a savings account with the bank. The KYC details provided for the registration should sync with the information present in the bank records.

Opening NPS Account for NRIs

a. Contributions to the NPS made by NRIs are regulated under the Foreign Exchange Management Act (FEMA) and RBI. The pension and annuity would be paid in INR.

b. Select the Repatriable/Non-Repatriable status of the bank account.

c. Fill the NRO/NRE bank account details and upload the scanned copy of the passport.

d. Enter the permanent address in India or an overseas address for communication.

e. Once the PRAN is allotted, the subscriber can select either of the 'e-Sign' or 'print and courier' option to open the NPS Tier-I account.

f. For an e-Sign opportunity, after the authentication of the aadhaar, the registration form has to be e-Signed by the subscriber for a fee of Rs.5 + Service Tax.

f. In the print and courier option, take a printout of the registration form, paste the recent photograph and sign it. The form should be dispatched within 90 days of the PRAN allotment date to CRA.

The form should be mailed to this address:

Central Recordkeeping Agency (eNPS)

NSDL e-Governance Infrastructure Limited,

First Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg,

Lower Parel, Mumbai - 400 013

Phone number: 022 - 4090 4242

Email: [email protected]

How to Contribute to NPS Corpus After Retirement?

NPS is a retirement savings scheme for the longer run. The subscriber can withdraw 60% of the retirement corpus upon reaching the retirement age in a lump sum, and the remaining amount is converted into a pension. The age of retirement is 60 years while the entry age to NPS has been increased to 65 years. If a subscriber wants to exit before 60, then only 20% of the accrued amount can be withdrawn while the remaining 80% will be required to purchase an annuity product that offers a regular income. Partial withdrawals in NPS are only allowed after three years of contribution, in which 25% of the corpus can be withdrawn and that too under certain exceptional conditions such as for the treatment of a severe illness. Only three partial withdrawals are permitted in the entire NPS term. In case of a subscriber's demise, the nominee can withdraw 100% of the fund.

Most of the NPS subscribers look forward to withdrawing their retirement corpus after reaching 60. However, some people may want to pass the annuity phase and continue investing in the scheme. Here are a few points to assist those who come under the second category:

a. The individuals can start investing from 18 years of age in the National Pension System until they turn 60. However, if the subscriber resumes the contribution in corpus even after retiring, then it can be done till 70 years of age or until superannuation.

b. To resume the contribution after reaching 60, the subscriber will have to submit a written request at least 15 days before attaining 60 years of age or superannuation.

c. If the individual has missed the 15-days notice period, then a written request should be submitted to the National Pension System Trust, specifying the reason for the delay.

In 2017, PFRDA had increased the entry age for NPS to 65 years. The individuals who are above 60 years but come within 65 years age bracket should invest for a minimum of 3 years or till they reach 70. In such a case, an early exit is only permitted after the continued contribution of minimum three years. Hence, during exit, an NPS subscriber who is 60 years old can choose any of the following options:

a. Pay 40% of the corpus in annuity and withdraw the rest in a lump sum.

b. Put the entire corpus amount in annuity instead of just 40%, which is compulsory.

c. Put minimum 40% of the corpus in annuity, and invest rest of the amount in the NPS and withdraw it at 70.

d. Resume the annuity payment for three years from the exit age until 70 years.

Through the options as mentioned above, people are offered sufficient flexibility to plan their investment and returns via NPS.

Age Limit in NPS

PFRDA had extended the upper age limit for joining NPS from 60 to 65 years in 2017. NPS was previously available to people who fall under the bracket of 18-60 years of age only. However, it allows contributions to the pension fund until 70 years of age. The government introduced this reform in NPS to permit easy portability of retirement funds and make NPS more desirable among the customers. The government has planned to open NPS to those sectors where pension is not provided from the employer's side. Only around 15%-16% of employees in India come under the pension scheme as 85% of the workforce works in the informal or unorganized sector.

Even a 1% difference in the scheme cost over 25-30 years tenure can make a difference of 15% -16% by the end of the term due to compounding interest scheme. The management charges for NPS fund are the lowest (0.01%) as compared to other funds which cost around 0.4% or 0.5%. Moreover, this pension scheme provides the best returns in the industry.

NPS Lite Swavalamban

The Swavalamban Pension Yojana scheme under NPS Lite was launched with the purpose of helping the people from the financial and economically backward sections to protect their future.

As per this scheme, the Indian government was contributing Rs. 1,000 to every individual's NPS account for the initial four years for the accounts that were opened in the year 2010-11. The Atal Pension Yojana replaced this scheme in 2015, where any subscriber of 40 years or less becomes eligible to receive a pension of up to Rs 5,000 after attaining 60 years of age.

The Government had closed Swavalamban scheme on 31st March 2015, and all the existing subscribers were given two options. Either they could shift their NPS Swavalamban Account to NPS All Citizen Model or Atal Pension, or they could close the current account and withdraw the amount within six months from the closing date of NPS Swavalamban account, which was before 30th September 2015.

Swavalamban, All Citizen Model and Atal Pension Yojana were three schemes under NPS at that time. The subscribers of the closed plans could shift their account from one program to other within six months of the closing date of the scheme if the required eligibility was fulfilled.

NPS Nomination

The subscribers should appoint nominees at the time of opening the NPS account in the registration form. Three nominees can be appointed in Tier-I and Tier II accounts. If the nomination has not been made while opening the account, then it can be done after the PRAN allotment. Visit the nearest POP-SP and request to update the nomination details for a fee of Rs.20 + Service Tax for each request. The nominees can be changed various times before exiting the scheme.

Pension Fund Managers of NPS

There are eight pension fund managers of NPS:

1. Birla Sun Life Insurance company limited

2. HDFC Pension Management Company

3. UTI Retirement Solutions Ltd

4. SBI Pension Fund Pvt Ltd

5. Reliance Capital Pension Fund Ltd

6. Kotak Mahindra Pension Fund Ltd

7. LIC Pension Fund Ltd

8. ICICI Prudential Pension Funds Management Company Limited

The contributions of the subscribers or investments in NPS are managed by the registered PFMs who invest in several financial instruments, such as equities, corporate bonds, and government securities, for favorable returns. The NPS subscribers can switch the pension fund managers once every year without any charges. Different pension fund managers can be selected for the Tier-I and Tier II accounts.

NPS Portability

The account can be managed from any location within the country. The subscriber can make contributions through any POP-SP across the country. NPS subscribers can also shift from the private sector to the government sector and vice versa.

NPS Contribution

1. The initial contribution to an NPS account is minimum Rs.500 for Tier-I account and Rs.250 for Tier II account, without taxes.

2. There is no maximum contribution limit.

3. The minimum contribution that has to be made in a financial year is Rs.1,000 for Tier-I account.

4. Minimum one transaction is allowed for a fiscal year.

NPS Transaction Charges

• The registration charge without taxes is Rs.200.
• The transaction fee is 0.25% of the contribution amount subjected to a minimum of Rs.20 and maximum Rs.25,000, excluding the taxes.
• All service charges are Rs.20 excluding taxes.
• Cheque, cash, and DD are a few available payment modes.

NPS Withdrawal Rules

The subscribers can take an exit from the NPS scheme upon reaching the age of 60 years. In this scheme, the subscriber has to put 40% of the corpus to buy an annuity, and rest of the amount can be withdrawn in a lump sum at retirement. The monthly annuity or pension is paid through direct bank transfer to the subscribers by the Annuity Service Providers. In case the total retirement corpus is within Rs.2 lakh, then the subscribers can withdraw the whole sum without purchasing the annuity.

A premature exit from NPS before the retirement age is only allowed if the subscriber has been investing in NPS for minimum ten years. In case of a premature exit, 80% of the corpus should be used to buy an annuity, and the remaining 20% would be paid in a lump sum. In events of the subscriber's demise, the retirement corpus is given to the nominee or any legal heir of the subscriber. The subscribers can choose to resume investing in the 60% lump sum amount till they turn 70.

NPS Withdrawal Process

The subscribers must submit a withdrawal application form at a POP-SP along with the required documents like PRAN card, identity proof, address proof, canceled cheque, and the POP validates the documents. Following the validation, the application is then sent to the NSDL-CRA. The CRA initiates the process, and settles the claim in consultation with the NPS Trust. The forms that are required for withdrawal request can be downloaded from the website at www.npscra.nsdl.co.in.

Death Benefits in NPS

As per the guidelines of the NPS, the nominee of the subscriber can withdraw the total lump sum or the full pension amount that has been accumulated in the subscriber's account after the subscriber's demise.

For a nominee to get the NPS claim, the following documents are required:

1. The relevant withdrawal forms should be filled and submitted depending on the employment status of the subscriber.

2. Original PRAN Card.

3. A canceled cheque showing the relevant details of nominee, such as the bank account number and IFSC Code.

4. The death certificate of the subscriber.

5. Any document or certificate which may verify that the person claiming the pension amount is the legal nominee/heir of the subscriber.

6. ID proof and Proof of Address of the nominee.

NPS Grievance Redressal Management System

a. The subscribers can register their grievances on www.npscra.nsdl.co.in using the I-PIN allotted to them while opening the retirement account.

b. The subscribers can also mail the forms to the CRA directly or can submit the grievance at the closest POP-SP, which, in turn, will be sent to the Central Grievance Management System (CGMS).

c. The subscribers can contact the CRA call center on their toll-free number 1-800-222080 and register their grievances using the T-PIN.

NPS Tax Benefits

1. The tax benefits for the individuals include 10% of the gross income under Section 80CCD (1) subjected to a maximum of Rs.1.5 lakh under Section 80CCE. An additional tax deduction of Rs.50,000 in Tier-I account is available under subsection 80CCD (1B).

2. Tax benefits for employers include 10% of the salary of the employee (Basic + DA) deductible from the taxable income as "Business Expense" from the Profit and Loss or PL account.

3. Partial withdrawal of up to 25% before reaching 60 years of age is exempted from tax. After 60 years, up to 40% withdrawal in a lump sum is exempted from tax.

Calculate the Pension Amount Received from the NPS

While calculating the pension amount that an individual will get from the NPS, it is noteworthy that the money invested by the subscriber will not grow at a predetermined rate, and the NPS will not pay the pension amount directly to the subscriber.

Calculating the amount of pension that a person receives can vary from an individual to another due to many factors, such as the risk profile, the choice of the fund manager, the performance of the fund manager as well as the individual's approach to investment. The subscribers can use the NPS calculator present on many web portals to determine the pension amount. These calculators make their calculations based on the following parameters:

a. Contribution Amount

b. Frequency

c. The rate of Interest

d. The number of Years.

e. Credit Score

Interest Rates Offered by NPS

Since the NPS invests the subscriber's money into a broad range of investment options, the NPS does not provide any specific interest rate. In general, the NPS Interest rate is between 12% - 14%, which is still on the higher side as compared with other investment options.

Steps to Check the Balance in NPS Statement Online

a. Open the website of the CRA and NSDL through the following link https://cra-nsdl.com/CRA/

b. Log in to the site by entering the user ID (PRAN) and password.

c. Following the login procedure, click on the 'Views' tab present under the transaction statement.

d. This will provide the details to the subscriber where the money is invested and display the fund managers appointed to manage the investments of the subscriber.

e. The subscriber can also determine the aggregate amount invested by himself as well as the government, including the returns he might have accumulated.

f. The balance details of the Tier II account can be accessed from the 'Account Details' section, shown at the footer.

How to Exit Prematurely from NPS?

Following are the three conditions under which an NPS subscriber can exit from the account:

a. On superannuation

b. Death of the subscriber

c. Premature closure

Here are a few essential points to keep in mind while prematurely exiting NPS:

a. The subscribers can prematurely close the NPS accounts only after completion of ten years (from the opening date of account).

b. Minimum 80% of the pension fund should be utilized to buy an annuity with the monthly pension payouts.

c. Remaining 20% pension corpus can be withdrawn at once in a lump sum.

d. The NPS subscribers can withdraw the pension corpus from their account online upon receiving the confirmation and approval from the designated POP-SPs.

e. A pension corpus of Rs.1 lakh or less can be withdrawn as a lump sum amount.

f. If the Tier-I account is closed, then by default, the voluntary Tier II account will also be closed. The entire amount from the Tier II account can be withdrawn without any restrictions, as it is a flexible account.

Documents required for premature closure of NPS account:

a. To claim the pension corpus before the retirement age, a subscriber must submit Form-302. Along with the form, the subscriber must also provide details of the NPS account, personal info, annuity option, bank account details, and the withdrawal amount.

b. A photocopy of the PRAN card.

c. Pre-signed receipt of approval.

d. Photocopies of address and identity proofs.

e. A canceled cheque.

Filing Withdrawal Claims

The following is the procedure for filing a withdrawal claim for an NPS account:

• A withdrawal claim must be filed at the nodal office of the Central Recordkeeping Agency (CRA) or the National Pension Scheme Trust.
• The amount permitted for withdrawal is restricted to 25% of the funds accumulated in the subscriber's account, excluding the contributions made by the employer.
• Withdrawal claims filed for constructing a home should be verified with proof that the property belongs to the subscriber or is held jointly with their spouse. Additionally, the withdrawal is only permitted if the subscriber does not own any other property apart from their ancestral property.
• While making withdrawal claims for treatment of medical illnesses for the subscriber, the request for withdrawal can be made by the subscriber's family members.
• A subscriber is only permitted to make three withdrawals during the tenure of the NPS.

NPS Withdrawal Forms

The Indian government has segregated all the NPS withdrawal forms into three kinds of categories:

a. Employees of the Government

b. Corporate's subscribers

c. Swavalamban or unorganized sector subscribers

Withdrawal Forms for Corporate Subscribers

a. Form 301 - Corporate employees and other individuals who opt for withdrawal of the total accumulated pension following retirement can use this form.

b. Form 302 - Corporate employees and other individuals who choose to withdraw their total accrued pension amount before the retirement can use this form.

c. Form 303 - The nominee or any legal heir of a corporate employee can avail of this form to claim the pension amount.

Asset Classes

The investment in the scheme is divided into asset classes:

a. Class A: Class A investments are made in alternative resources like real estate and infrastructure.

b. Class E: Class E investments refer are made in equity markets.

c. Class C: Class C investments are made in fixed income investment instruments. These investments don't include government securities.

d. Class G: Class G investments are made in government securities.

FAQs

Q 1. Following the retirement, are employees involved in government service eligible for leave encashment as per the guidelines of the NPS?

Leave encashment is not permitted as per the guidelines that are given by the CCS, and it doesn't count as the benefit component available to the employee after retirement.

Q2. What is the reason behind the 40% utilization of the accumulated pension funds to buy the annuities after retirement?

This move has been taken to ensure that employees in government service still acquire a regular and stable income every month after their retirement.