Pension
A regular payment a person receives after retiring from regular work, or on reaching a certain age, so they have an income once they stop earning.
In plain language
Pension answers one simple problem: once you stop earning a salary, how do you keep getting paid?
The workbook describes pension as a regular payment which one aspires to receive regularly, once the person retires from their regular occupation or job, or reaches a certain age from which they do not want to work. It exists to provide financial security and stability during old age, when a regular income has otherwise stopped.
Pension schemes work by letting a person invest and build up savings during their working years, so that on retirement they receive that accumulated amount back as regular income, often through an annuity plan.
How it works
For those without a separate account, the workbook's pension checklist is practical rather than numeric: no need to open a separate account for pension, the existing account can be used, and the pension account can be transferred to another branch or a different bank altogether. What does carry a fixed date is the annual Life Certificate, due at the bank branch in November every year, without which the pension can stop.
On a larger scale, the workbook describes the National Pension System (NPS) as the government scheme that institutes pension reform: open to all citizens from 1 May 2009, including unorganised-sector workers, for those aged 18 to 60, each subscriber holding a lifelong Permanent Retirement Account Number (PRAN).
A worked example
Geeta retires from a state government job at age 60 after 35 years of service and starts receiving a monthly pension of Rs 28,000 into her existing bank account — no new account was needed.
Each November she submits her Life Certificate to keep the pension credit flowing without interruption. Ten years later, when she moves cities to live with her daughter, she has the same pension account transferred to a branch near her new home rather than starting the process over.
Her neighbour Anil, who works in the unorganised sector and has no employer pension at all, instead opens an NPS account at age 35, contributing regularly until 60 so that his own accumulated savings can provide him a comparable regular income later.
Why NISM asks about it
Chapter 7 (Pension, Retirement and Estate Planning) opens with this definition of pension before moving into the practical pensioner checklist and then the National Pension System in detail. Expect the exam to test the purpose of a pension — income security after regular work stops — before testing any NPS mechanics.
Common exam traps
- A pension is not the same as a lump sum. The workbook frames it as a regular payment, not a one-time amount.
- No separate account is needed to receive a pension, and the same account can be transferred across branches and banks.
- The annual Life Certificate is what keeps a pension flowing — missing it is a common practical trap, not a theoretical one.
Check yourself
1.Which statement about the National Pension System is correct?
- a)It is available only to central government employees
- b)It has been available to all citizens including unorganized sector workers on a voluntary basis with effect from 1 May 2009, for those aged 18 to 60
- c)It is available to all citizens aged 21 to 55
- d)It was introduced in 2004 and closed to new subscribers in 2009
Show the answer
Answer: (b) It has been available to all citizens including unorganized sector workers on a voluntary basis with effect from 1 May 2009, for those aged 18 to 60
"With effect from 1st MAY, 2009, NPS has been provided for ALL CITIZENS of the country INCLUDING THE UNORGANIZED SECTOR WORKERS on VOLUNTARY BASIS... NPS is a government approved pension scheme for Indian citizens in the 18-60 AGE GROUPS." The inclusion of the unorganised sector is the important half in the Indian context: a salaried employee usually has a provident fund accumulating in the background, while a shopkeeper, tailor, taxi driver or farmer has no employer contributing anything — for them the corpus exists only if they build it. The subscriber receives a PRAN (Permanent Retirement Account Number) which "will remain the same for the rest of the subscriber's life" and "can be used from ANY LOCATION IN INDIA". The stated aims are "to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens."
2.When must a pensioner submit the Life Certificate to the bank branch, and what is the digital alternative?
- a)In April every year; the alternative is a notarised affidavit
- b)In November every year; the alternative is "Jeevan Pramaan", a Digital Life Certificate using Aadhaar and mobile
- c)Once every three years; there is no digital alternative
- d)In November every year; the alternative is a video call with the branch manager
Show the answer
Answer: (b) In November every year; the alternative is "Jeevan Pramaan", a Digital Life Certificate using Aadhaar and mobile
"Do remember to submit your 'LIFE CERTIFICATE' to your bank branch in NOVEMBER, every year" and "'JEEVAN PRAMAAN' – Digital Life Certificate using AADHAAR AND MOBILE at: www.jeevanpramaan.gov.in." Before Jeevan Pramaan, a pensioner had to physically appear at the disbursing branch once a year to prove they were alive — a real hardship for the frail, the ill and anyone living far from the branch, and missing it stops the pension. Three other conveniences sit alongside it and are equally examinable: "No need to open separate account for pension", "Existing account can be used for receiving pension", and "Pension account can be transferred to another branch or DIFFERENT BANK" — so moving to live with a child no longer strands the pension.
3.Which statement correctly distinguishes NPS Tier I from Tier II?
- a)A bank account is mandatory for Tier I but not for Tier II
- b)Tier I is the mandatory retirement account with restricted withdrawal and tax benefits; Tier II is a voluntary saving account with free withdrawal and no tax benefits, and requires an active Tier I account
- c)Funds can be transferred from Tier I to Tier II at any time
- d)Both tiers offer identical tax benefits
Show the answer
Answer: (b) Tier I is the mandatory retirement account with restricted withdrawal and tax benefits; Tier II is a voluntary saving account with free withdrawal and no tax benefits, and requires an active Tier I account
The chapter's table gives five rows. Eligibility — Tier I: "All citizens of India"; Tier II: "Anyone with an active Tier I Account." Bank account — Tier I: "Not mandatory"; Tier II: "Mandatory" (option (a) reverses this, a favourite distractor). Liquidity — Tier I: "Certain portion is allowed to be withdrawn from pension account subject to prescribed conditions"; Tier II: "Subscriber is free to withdraw savings from this account whenever the subscriber wants to." Fund transfer — Tier I: "Not possible"; Tier II: "Funds can be transferred from Tier II to Tier I account", which disposes of option (c). Tax benefit — Tier I eligible, Tier II not eligible. Notice the design: restriction and tax benefit travel together, exactly as in Chapter 4's Special Bank Term Deposit Scheme, and every structural nudge points money towards retirement.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- National Pension SystemA PFRDA-regulated, defined-contribution retirement scheme in which the subscriber builds a market-linked corpus and must convert part of it into an annuity at exit; there is no guaranteed return.
- Permanent Retirement Account NumberThe unique account number issued when an NPS account is opened; it stays with the subscriber for life and across employers, which is what makes NPS portable in a way EPF historically was not.
- Jeevan PramaanThe digital life certificate a pensioner can submit online, using Aadhaar and a mobile, at jeevanpramaan.gov.in, instead of visiting the bank branch in person.
- Life CertificateThe annual proof-of-life a pensioner must submit to their bank branch every November to keep their pension account operative.
- Lifecycle fundThe NPS Auto Choice investment option that shifts a subscriber's money away from equity and toward safer bonds and government securities automatically, as they age.