National Pension Scheme (NPS) is a voluntary retirement savings scheme laid out to allow the subscribers to make defined contribution towards planned savings The National Pension Scheme (NPS) in India is a government-supported plan for retirement savings. It lets people regularly invest money while working to build up a fund for retirement. When they retire, this fund can be used to buy an annuity, providing a steady income.
Anyone in India between 18 and 65 can join NPS, and it’s known for its flexibility—you can keep it even if you change jobs. a big plus of NPS is its tax benefits. The money you put into NPS can be deducted from your taxable income, helping you save on taxes. NPS is managed by professionals and offers different investment choices, like stocks, bonds, or corporate debt, based on your risk tolerance. You can change your investment mix over time.
Overall, NPS encourages saving for retirement and aims to help people have enough money to enjoy their later years comfortably. thereby securing the future in the form of Pension. It is an attempt towards a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
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Who can join National Pension Scheme?
NPS is open to all citizens of India, both resident and non-resident, between the age of 18 and 70 years. However the following persons are not eligible to join NPS:
- Individuals who are already covered under a statutory social security scheme
- Individuals who are not competent to contract under the Indian Contract Act, 1872
- Individuals who have been declared insolvent or are undergoing insolvency proceedings
- Individuals who have been convicted of any criminal offence involving moral turpitude⁵
How to join National Pension Scheme?
To join NPS, one needs to have a mobile number, an email ID, and an active bank account with net banking facility enabled. One can register online through the eNPS portal or visit any of the Points of Presence (PoPs) or PoP Service Providers (PoP-SPs) authorized by PFRDA. One can also open an NPS account through India Post.
What are the types of National Pension Scheme accounts?
NPS offers two types of accounts to its subscribers:
- Tier I Account: This is a mandatory account that is meant for savings for retirement. The contributions made to this account are eligible for tax benefits under Section 80C and Section 80CCD(1B) of the Income Tax Act, 1961. The withdrawals from this account are subject to certain conditions and restrictions.
- Tier II Account: This is an optional account that provides a voluntary savings facility. The contributions made to this account are not eligible for any tax benefits. The withdrawals from this account are free from any restrictions.
How much can one contribute to National Pension Scheme ?
The minimum contribution required for opening an NPS account is Rs. 500 for Tier I and Rs. 1000 for Tier II. The minimum contribution required for maintaining an NPS account is Rs. 1000 per annum for Tier I and Rs. 250 per transaction for Tier II. There is no upper limit on the amount of contribution that one can make to NPS.
How are the contributions invested in NPS?
The contributions made by the subscribers are invested in various market-linked instruments such as equities, corporate bonds, government securities, and alternative assets by the Pension Fund Managers (PFMs) appointed by PFRDA. The subscribers can choose from four different investment options:
- Active Choice: Under this option, the subscribers can decide their own asset allocation among the available asset classes as per their risk appetite and return expectations.
- Auto Choice: Under this option, the asset allocation is done automatically by the system based on the age of the subscriber. The asset allocation becomes more conservative as the subscriber grows older.
- Aggressive Life Cycle Fund: Under this option, the equity exposure starts with 75% till the age of 35 years and gradually reduces to 15% by the age of 55 years.
- Moderate Life Cycle Fund: Under this option, the equity exposure starts with 50% till the age of 35 years and gradually reduces to 10% by the age of 55 years.
- Conservative Life Cycle Fund: Under this option, the equity exposure starts with 25% till the age of 35 years and gradually reduces to 5% by the age of 55 years.
What are the returns on NPS?
The returns on NPS depend on the performance of the underlying investments made by the PFMs. The returns are not guaranteed or fixed by PFRDA or any other authority. The subscribers can view their portfolio details and returns on their NPS account through the CRA website or mobile app.
What are the charges involved in NPS?
NPS charges a nominal fee for various services such as account opening, maintenance, transaction, fund management, etc. The fee structure is as follows:
| Service | Charge |
|---|---|
| Account Opening | Rs. 200 |
| Annual Maintenance | Rs. 100 |
| Transaction | Rs. 4 |
| Fund Management | 0.01% – 0.1% per annum |
| Annuity Service | As per annuity service provider |
| The charges are deducted from the subscriber’s account balance or contribution amount as applicable. |
How to exit from NPS?
The exit from NPS depends on the age and type of account of the subscriber.
- For Tier I Account:
- On attaining the age of 60 years or superannuation: The subscriber can withdraw up to 60% of the accumulated corpus as lump sum and the remaining 40% has to be used to purchase an annuity plan from a PFRDA empanelled annuity service provider. The annuity plan will provide a regular monthly pension to the subscriber for life. The lump sum withdrawal and the annuity income are taxable as per the income tax laws.
- Before attaining the age of 60 years: The subscriber can withdraw up to 20% of the accumulated corpus as lump sum and the remaining 80% has to be used to purchase an annuity plan from a PFRDA empanelled annuity service provider. The annuity plan will provide a regular monthly pension to the subscriber for life. The lump sum withdrawal and the annuity income are taxable as per the income tax laws.
- In case of death: The entire accumulated corpus will be paid to the nominee or legal heir of the subscriber as lump sum. The lump sum payment is exempt from tax.
- For Tier II Account:
- The subscriber can withdraw the entire balance from the Tier II account at any time without any restrictions or charges.
What are the benefits of NPS?
NPS offers several benefits to its subscribers such as:
- It provides a low-cost, flexible, and portable retirement savings scheme that can be accessed from anywhere in India.
- It allows the subscribers to choose their own investment option, asset allocation, PFM, and annuity service provider as per their preference and suitability.
- It offers tax benefits on the contributions made to Tier I account under Section 80C and Section 80CCD(1B) of the Income Tax Act, 1961. The total deduction available under these sections is Rs. 2 lakh per annum.
- It provides a regular monthly pension to the subscribers after retirement through an annuity plan that can be customized as per their needs and goals.
- It ensures transparency and accountability by providing online access to the account details, portfolio performance, and transaction history of the subscribers
- Locate a Point of Presence (POP) for the National Pension Scheme (NPS).
- Obtain the subscription form from the POP.
- Fill out all required information accurately in the subscriber form.
- Attach all necessary documents as specified.
- Submit the completed form along with KYC papers to the POP.
- Receive a reference number from the POP for tracking your application.
- Deposit your initial contribution along with an instruction slip detailing the payment.
- Complete the online registration form on the official NPS website.
- Upload scanned copies of required documents.
- Make the initial contribution payment through online banking or other specified methods.
