What is the NATIONAL PENSION SYSTEM (‘NPS’)?
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India. Well regulated environment [Pension Fund Regulatory and Development Authority (PFRDA) as regulator & Board of NPS Trust as Trustees] to oversee the overall function of pension funds to safeguard the interest of subscribers.
NPS Features
Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority (PFRDA) NPS works as a safe retirement fund. The Government authorized PFRDA vide Ministry of Finance, Department of Financial Services to extend NPS on a voluntary basis to all citizens of India including workers of the unorganized sector.
Under NPS following two types of accounts will be available:
* Subscriber will be eligible for opening Tier – II account only if he has opened Tire – 1 account and it must be active.
Who can join?
A citizen of India, whether resident or non-resident, subject to the following conditions:
- Individual between 18 – 60 years of age as on the date of submission of his/her application to the POP/ POP-SP and complying with the prescribed KYC norms.
How to enroll in the NPS?
How much does a subscriber need to contribute?
For Tier-I
For Tier-II
Minimum contribution requirement:
The subscriber can contribute the amount through local cheque or demand draft for initial Registration and ECS (Auto-Debit) only for subsequent subscriptions at KARVY POP-SP only.
No outstation cheques shall be accepted.s
What are the benefits of joining the NPS?
It is voluntary- NPS is open to every Indian citizen. One can choose the amount you want to set aside and save every year.
It is simple all one has to do is to open an account with any one of the POPs and get a PRAN.
It is flexible- One can choose their own investment option and Pension Fund Manager and see your money grow.
It is portable- One can operate their account from anywhere in the country, even if there is change in city, job or selected pension fund manager.
It is regulated- NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.
Tax Benefits - It reduces your tax liability by availing the deductions u/s (80CCD) which will be upto Rs.1,50,000/- under section 80 CDD(1) and an additional Rs.50,000/- under section 80CCD (1B) as per assessment year (applicable from FY 2015-16/AY 2016-17). Employer's contribution to NPS made on behalf of employee(s) under Section 80CCD(2) of Income Tax Act, subject to 10% of the Salary (Basic + DA) shall be "allowed deduction in the computation of employee's total income". This is over and above the overall limit of Rs. 1.5 Lakh under Section 80C.
On attaining the Normal Retirement Age (NRA) of 60 years - One will be required to compulsorily annuitize at least 40% of their pension wealth and the remaining 60% can be withdrawn as a lump sum or in a phased manner; in case, one opts for a phased withdrawal:
Minimum 10%of the pension wealth should be withdrawn every year.
Any amount lying to the credit at the age 70 should be compulsorily withdrawn in lump sum.
Withdraw any time before 60 years of age- In such a case, (i) one will have to compulsorily annuitize 80% of the accumulated pension wealth. The remaining 20% can be withdrawn as a lump sum. OR (ii) As per the new notification by PFRDA, A subscriber can withdraw up to 25% of the corpus provided, he/she has contributed in the scheme for a minimum of 10 years*
*maximum withdrawal allowed is three times, and only for the purpose of higher education and marriage of children, construction of house or specific alignment diseases etc.
What investment choice does the subscriber have?
The NPS offers two approaches to invest money:
Active Choice
One will have the option to actively decide as to how their NPS pension wealth is to be invested in the following three options:
Asset Class E - investments in predominantly equity market instruments.
Asset Class C- investments in fixed income instruments other than Government securities.
Asset Class G - investments in Government securities
Sum of all must equal 100%
One can choose to invest their pension wealth in C or G asset classes and up to a maximum of 50% in equity (Asset class E).
In case one decide to actively exercise their choice about investment options, he/ she shall be required to indicate their choice of Pension Fund Manager (PFM) from among the Pension Fund Managers (PFMs) appointed by PFRDA.
Auto Choice
For those who do not have the required knowledge to manage their NPS investments. In such case their funds will be invested in accordance with the Auto Choice option.
One will, however, be required to indicate their choice of PFM. In this option, the investments will be made in a life- cycle fund with a pre-defined portfolio.
In case one does not indicate any choice of PFMs, your form shall not be accepted by the POP-SP. Investment Guidelines
The PF will manage 3 separate schemes, each investing in a different asset class, being:
Asset class E (equity market instruments) – in index funds that replicate the portfolio of either BSE Sensex or NSE Nifty.
Asset class G (Government Securities) – in Central Government bonds and State Government bonds.
Asset class C (credit risk bearing fixed income instruments) – This asset class will be invested in the following instruments: