National Pension Scheme (NPS): Everything You Need to know

The Government of India started the National Pension System (NPS) on 1st January 2004 to offer retirement income to the Indian citizens. The objective was to offer a secure amount after retirement and to encourage individuals to save money.

The subscribers have the facility to select from one of these fund managers:

1. UTI Retirement Solutions Ltd
2. SBI Pension Funds Pvt. Ltd
3. LIC Pension Fund Ltd.
4. HDFC Pension Management Co. Ltd.
5. ICICI Prudential Pension Fund Management Co. Ltd.
6. Kotak Mahindra Pension Fund Ltd.
7. Reliance Capital Pension Fund Ltd.

Eligibility criteria

Every Indian citizen, whose age is between 18 to 60 years, can be a part of this plan. Applicants need to be compliant with KYC norms as specified in the subscriber registration form.

How does NPS function?

NPS allows the subscriber to invest in multiple pension funds. Presently, the scheme offers three types of funds for investment purposes. In case the subscriber fails to describe the choice of fund and preference during registration, the money is invested in the default funds that are administered by PRFDA (Pension Fund Regulatory and Development Authority). Though there is an option of switching between pension funds, the subscriber has to continue a fund for at least one year before choosing another one.

The interested individual needs to submit the following documents with the duly signed form:

• Identity proof (Any of these documents: Any Electricity Bill, Aadhar Card, PAN Card, Passport, Ration Card, Bank Passbook, etc.)
• Address Proof (Any of these documents: Ration Card with photograph, Bank Passbook, PAN Card, Passport, Photo Identity Card, etc.)

Types of National Pension Scheme (NPS)

Two types of accounts come under NPS:

Tier-1 Account

This is a basic pension account that comes with certain limitations on withdrawal. The individual can withdraw only 20 percent of the contribution before they attain 60 years of age. The rest of the amount (80 percent) has to be used to purchase an annuity from a life insurance company. In terms of insurance, annuity refers to payments done at certain intervals of time.

When an individual reaches 60 years of age, around 60 percent of the contribution is allowed for withdrawal. The remaining amount (40 percent) is used for buying annuities from insurance firms.

Tier-II Account

This is mainly a voluntary savings facility. The subscriber can withdraw as much amount as he wants without any limitation or time-related constraints. The subscribers don’t enjoy any tax benefits with this account.

Swalamban Yojana

This is a pension plan for unorganized sector workers. As a part of this scheme, the government contributes an amount of Rs. 1000 for every subscriber who contributes at least Rs. 1000 and maximum Rs.12,000 per annum.

Benefits of NPS

A lot of financial advisors recommend investing in this plan due to its multiple benefits, including:

• Assured returns during investment are the basic benefit of this plan.
• The scheme lets the subscriber choose from investment options they find suitable
• The transparent investment norms ensure that the money of investors stays safe
• The individuals are allowed to switch between different investment funds
• The subscribers enjoy tax benefits as per the Section 80C of the Indian Income Tax Act
• When compared with other investment options like Mutual Funds and EPS, this scheme has better performance
• It is simple to operate. The subscriber receives a unique permanent retirement account number (PRAN) that remains with the individual throughout his life.
• Unlike other pension plans, this scheme offers easy portability across different locations and different jobs.

Conclusion

The multiple benefits discussed above show why this scheme is better than other pension plans in the market. But unfortunately, it is one of the underrated plans, as a lot of individuals are not aware of it. Both employers and government bodies need to spread awareness among the working individuals so that more and more individuals can enjoy their benefits. To enjoy the maximum benefits of this plan, you must read the features of funds associated with this plan.