The National Pension System (NPS) is a market-linked retirement savings scheme that helps build a solid retirement corpus. In this scheme, anyone who wishes to secure their financial future can contribute a set amount each month and enjoy market returns and tax benefits.
Unlike the Employees’ Pension Scheme (), which automatically diverts 8.33% of the employer’s contribution into the retirement pension pool for formal-sector workers, voluntary schemes like the NPS operate on an entirely different structure.
But what happens to your NPS account when contributions stop for a few years? This can be a common concern among investors, as pausing retirement savings may become unavoidable due to financial constraints, a spell of unemployment, emergency expenses or other unforeseen circumstances.
Can you stop NPS contributions for a few years?
Yes, an NPS subscriber can temporarily stop making fresh contributions for a few months or even several years.
However, if you halt contributions for some time, it does not mean that the money already accumulated in the account should be withdrawn. It also does not stop earning returns during this period.
It continues to benefit from market-linked returns, although the value can rise or fall, depending on the performance of the underlying investments. NPS contributions are invested in diversified portfolios like , corporate bonds, and government securities.
How much does your retirement corpus lose?
Since NPS does not offer fixed returns and depends entirely on market cycles, it’s hard to estimate the value of your final.
For illustrative purposes, let’s consider a 40-year-old individual who plans to retire at 60 and contributes ₹10,000 per month to NPS. If the investment earns an assumed 12% annual return, continuing the contribution for 20 years could build a corpus of about ₹99,91,476, according to the SBI Pension Funds NPS calculator.
However, investors must note that they cannot withdraw the entire corpus all at once. Corporate employees can withdraw up to 80% of the accumulated balance as a lump sum and use at least 20% of it to buy an annuity. Similarly, government employees can withdraw up to 60% of their wealth at exit, with the remaining 40% used to purchase an annuity.
Now, let’s assume that the person takes a break. Here’s what happens to your retirement corpus in different scenarios. The illustration assumes a ₹10,000 monthly contribution, age 40, retirement at 60, and a 12% annual return. Actual NPS returns can vary based on market performance.
| Pause in contributions | Investment period | Estimated corpus at 60 | Reduction in corpus |
|---|---|---|---|
| No break | 20 years | ₹99,91,476 | – |
| 1 year | 19 years | ₹87,53,250 | ₹12,38,226 |
| 3 years | 17 years | ₹66,79,205 | ₹33,12,271 |
| 5 years | 15 years | ₹50,45,756 | ₹49,45,720 |
Source: SBI Pension Funds NPS calculator
What is the minimum and maximum one can contribute to NPS?
The minimum annual contribution is just ₹1,000. That’s it. There’s no upper limit, meaning you can invest as much as you like.
Of course, tax benefits are capped, but you can continue contributing beyond those limits if you want to grow your retirement corpus.
This means you do not necessarily have to maintain a monthly contribution to NPS. But if you do not meet the minimum annual contribution requirement, the account may be frozen after a period of inactivity.