National Pension Scheme

The National Pension Scheme (NPS) stands as a pillar of support for Indian citizens, offering a reliable source of income during their retirement years. Governed by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS ensures that subscribers can enjoy financial security in their golden years. At the heart of this system lies the National Pension System Trust (NPST), established by the PFRDA, which safeguards all NPS assets for the benefit of the contributors.

What is National Pension Scheme?

The National Pension System (NPS) is a voluntary retirement savings scheme that allows members to make specific contributions to planned savings, ensuring a pension in the future.

In an effort to tackle the challenge of ensuring sufficient retirement funds for every individual in India, there’s a focus on finding a sustainable long-term solution.
Subscribers to the retirement scheme have the option to utilize their saved pension funds to buy a life annuity from a life insurance company approved by the Pension Fund Regulatory and Development Authority (PFRDA) when they opt for regular withdrawals.
Additionally, subscribers have the flexibility to withdraw a portion of their accumulated pension funds as a lump sum if they so choose.
The PFRDA is responsible for overseeing the implementation and management of the National Pension System (NPS), ensuring compliance and effectiveness.

Objectives for National Pension Scheme

Saving a substantial retirement nest egg is a vital aspect of financial planning, ensuring a comfortable post-work life.
To address the needs of India’s growing older people population, the government has implemented initiatives such as the National Pension System (NPS).
The NPS promotes disciplined saving habits by encouraging individuals to set aside funds regularly throughout their careers.
By participating in the NPS, people can ensure a smoother transition into retirement and better meet their financial needs during their golden years.

Salient Features for National Pension Scheme

Here are the salient features of NPS:

The National Pension System (NPS) offers individuals a structured way to save and invest for retirement, ensuring a steady pension income upon retirement.
Contributions to NPS are eligible for tax benefits under sections 80C and 80CCD of the Income Tax Act.
NPS boasts a cost-effective fee structure compared to other investment avenues, enhancing potential returns.
Subscribers can select from various pension funds to oversee and invest their NPS contributions.
Subscribers can opt for either Active Choice, where they determine asset allocation, or Auto Choice, where it’s done automatically.
Partial withdrawals are permitted from NPS accounts before retirement, and subscribers have the flexibility to exit fully before retirement age.
Subscribers can designate nominees who will receive the accumulated pension wealth in the event of the subscriber’s demise.
At retirement, up to 60% of the NPS corpus can be utilized to purchase an annuity plan from an IRDA-approved life insurer, ensuring regular pension payments.
Government employees may receive matching contributions to their NPS accounts in certain instances.

Eligibility

Any Indian citizen aged between 18 to 60 years can easily open an NPS account, regardless of their income level.
NRIs also have the option to open NPS accounts, but they need to go through the NPS Lite scheme, which comes with some limitations.
Government employees are automatically enrolled in the NPS program.
The Atal Pension Yojana offers a special opportunity for individuals aged 18 to 40 years without any existing pension plan. Through NPS Lite, they can enroll and later receive a guaranteed pension ranging from Rs. 1000 to Rs. 5000 per month after reaching 60 years of age.
Self-employed professionals like doctors, accountants, architects, etc., can also join NPS to secure their retirement.
Employers have the option to enroll their employees in NPS according to their company policies.

Benefits

Here are the benefits of NPS:

Tax benefits are available for investments in NPS under sections 80C and 80CCD of the Income Tax Act. Contributions up to Rs. 1.5 lakh under section 80C and up to Rs. 50,000 under section 80CCD qualify for deductions.
NPS offers a reliable source of income post-retirement, ensuring financial security and independence during old age.
Compared to other investment options, NPS boasts a notably low fee structure, which contributes to potentially higher returns for investors.
Some categories of employees receive partial matching contributions from the government, which bolsters the retirement corpus.
NPS provides flexibility in choosing from various pension funds, allowing investors to align with their investment preferences.
The NPS account permits partial withdrawals or complete exit before retirement to address any unforeseen financial exigencies.
NPS account holders can nominate beneficiaries who are entitled to receive the accumulated pension wealth in case of the account holder’s demise before retirement.
Upon retirement, NPS funds can be utilized to purchase annuity plans from IRDA-approved life insurance companies, ensuring a steady stream of pension income.

Working

After participating in the NPS and providing feedback through NPS, individuals receive a Permanent Retirement Account Number (PRAN).
NSDL-CRA sends an email and SMS alert to the subscriber’s registered email address and mobile number to notify them when the PRAN is generated (Central Record Keeping Agency).
Subscribers regularly contribute to the NPS throughout their working life to build a retirement fund.
Upon retirement or exiting the scheme, a portion of the corpus is mandated to be invested in an annuity, ensuring a steady monthly income post-retirement or exit.