Retirement planning is a critical aspect of financial stability and governments around the world have implemented various pension schemes to ensure citizens' well-being during their golden years. In this regard, the National Pension Scheme (NPS) has emerged as a reliable and efficient retirement savings system.What is the National Pension Scheme?The National Pension Scheme, also known as the NPS, is a voluntary and contributory pension system established by the government to provide retirement income to citizens. It is structured to create a corpus of savings for subscribers, which can be utilised to generate a regular income stream post-retirement.NPS Interest RateThe interest rate of the NPS is determined by the performance of its assets, making it impossible to predict the exact returns upon retirement. The NPS operates as a market-linked product, allowing investors to allocate their funds among equity, government debt, corporate debt and alternative assets. Once the asset mix and fund manager are chosen, the invested funds are allocated to specific schemes within these four asset classes.NPS provides the flexibility of having two types of accounts: Tier 1 and Tier 2. Both these accounts have distinct features and serve different purposes.Tier 1 Account: It is the primary and mandatory account under the National Pension Scheme, designed to provide a long-term retirement savings solution, with certain restrictions on withdrawals. Investment and Contributions: Contributions to the Tier 1 account are mandatory for all NPS subscribers. The minimum annual contribution required to keep the account active is ₹1,000. Subscribers have the flexibility to choose their contribution amount and frequency, with no fixed minimum or maximum limits per transaction. Lock-in Period: The Tier 1 account has a lock-in period until the subscriber reaches the age of 60. Withdrawals from the account are restricted, except for specific circumstances, such as critical illness, higher education and purchasing a residential property. Tax Benefits: Contributions made to the Tier 1 account are eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum limit. Additionally, contributions up to ₹50,000 per financial year are eligible for an exclusive deduction under Section 80CCD(1B).Tier 2 Account: The Tier 2 account is an optional savings account that offers greater flexibility in terms of withdrawals, but does not provide tax benefits on contributions. Investment and Contributions: The Tier 2 account allows subscribers to make voluntary contributions without any minimum annual contribution requirements. The account acts as a supplement to the Tier 1 account, providing more liquidity and accessibility. Withdrawal Flexibility: Unlike the Tier 1 account, there is no lock-in period for the Tier 2 account. Subscribers can make partial withdrawals from the account whenever required, subject to a minimum withdrawal amount. The withdrawals are not limited to specific purposes and can be made at the subscriber's discretion. Tax Treatment: Contributions to the Tier 2 account do not offer any tax benefits. However, the earnings generated from investments in the Tier 2 account are subject to taxation, as per the individual's income tax slab.Three sections to tax saving 80CCD(1), 80CCD(1B), and 80CCD(2)- Section 80CCD(1): Both salaried individuals and self-employed professionals can claim a deduction of up to 10 per cent of their salary (for salaried individuals) or gross total income (for self-employed individuals) under 80CCD(1). However, the total deduction claimed under this section, cannot exceed ₹1.5 lakh.- Section 80CCD(1B): It offers an exclusive deduction of up to ₹50,000 over and above the limit available under Section 80CCD(1), but is available only for contributions made to the NPS Tier-I account.- Section 80CCD(2): It provides an additional tax benefit for salaried employees who receive contributions from their employers towards the NPS. The deduction, capped at 10 per cent of the employee's salary (basic salary + dearness allowance) or gross total income, whichever is lower, is available on the employer's contribution and has no specific limit. It is independent of the deductions claimed by the employee under Section 80CCD(1) and Section 80CCD(1B), and provides an additional incentive for employees to contribute to the NPS, as the employer's part also contributes to the overall tax-saving effort.Active and Auto Choice: Navigating your NPS investmentsWhen it comes to investing in the National Pension Scheme (NPS), you have the power to choose how you want to play the game. Whether you're a hands-on decision-maker or prefer a hassle-free approach, NPS offers two investment options.Active Choice: You have the freedom to allocate your contributions across different asset classes. The NPS offers a range of options, including equity, corporate bonds, government securities and even alternative assets. You get to decide how much to put into each of these investment avenues, and adjust your asset allocation as per your preference and market conditions.Auto Choice: Auto Choice takes the guesswork out of your hands. It follows an age-based asset allocation strategy, which means the investment mix automatically adjusts based on your age. The idea is to gradually reduce exposure to riskier assets like equities as you approach retirement, aiming for more stable returns. You can simply let the experts take care of it for you.Why should you opt for National Pension Scheme?National Pension Scheme just secures your future with some extra perksNPS is open to everyone between the ages of 18 and 65, whether you're earning a pay check, hustling as a freelancer, or even a globe-trotting NRI.Once you sign up, you get your own unique number, called a Permanent Retirement Account Number (PRAN). That PRAN becomes your trusty companion, holding all your contributions, investment information and personal details.You have the power to choose how much and how often you want to contribute. There are no strict rules on minimum or maximum amounts. Just make sure you invest a little something every year to keep the account active.Even if you switch jobs or move cities, your PRAN remains the same. Plus, there's the added bonus of being able to make partial withdrawals before retirement for things like buying a house, funding education or tackling unexpected health problems.