What is the difference between NPS and EPF for retirement planning?

Which one is better - NPS or EPF? My office has given us an option to switch over to NPS from the existing EPF scheme. I am going to retire next year and my PF accumulation will be around Rs 50 lakh. Please suggest whether switching over to NPS at this stage will be beneficial to me or not. - Rajesh Kumar Bhasin

Both the National Pension System (NPS) and Employees' Provident Fund (EPF) are popular options for retirement planning in India. However, they have different features and objectives.

EPF is a mandatory provident fund deduction from your salary, with the main objective of creating a retirement corpus. The money received on retirement is tax-free. On the other hand, NPS is a voluntary savings vehicle with a focus on accumulation for retirement.

As you are approaching retirement next year and already have accumulated money through EPF, switching to NPS now may not make a significant difference. You can wait and realise the EPF money and then invest based on your goals and objectives. If you plan to generate regular income during retirement, consider investing with that objective in mind. Check out how a retiree can build a portfolio.

If you are not seeking regular income and prefer to invest in NPS, you can still do so even if you are not currently employed. You can voluntarily open an NPS account until the age of 70 and invest your money. However, your money will be locked until you reach the age of 60, which may be beneficial if you wish to postpone consumption until that age.

Suggested read: Last-minute tax-saving guide

This article was originally published on February 10, 2023.