By Shashank Suresh
What is National Pension Scheme (NPS)?
The National Pension Plan is a social security scheme supported by the government. This pension system is open to public, private and even unorganised employees except for members of the military.
The programme encourages employees to contribute regularly during their work to a pension plan. After you retire, the leftover money will be paid as a monthly pension if you have an NPS account. The PFRDA has now made it available to all Indian residents voluntarily. The NPS programme is invaluable for everyone who works in the private sector and needs a monthly pension after retirement.
Who should invest in the NPS?
The NPS is a fantastic option for anyone who wants to start saving for retirement early and isn’t afraid of taking risks. A regular pension (income) in retirement would undoubtedly benefit those who retire from private-sector work. Salaried persons who want to take advantage of the 80C deductions should also examine this plan.
Types of NPS Accounts
Individual NPS accounts (All Citizens Model) and Corporate NPS accounts are the two most common forms of NPS accounts.
- All Citizen Model
The subscriber and the employer can contribute to the subscriber’s NPS account in a Corporate NPS account. Employees will take advantage of the corporate NPS benefit only if the company registers for it. Under the same Permanent Retirement Account Number, you can create two sub-accounts (PRAN). In NPS, these sub-accounts are referred to as tiers:
- Corporate Model
Subscribers and employers can both contribute to the subscriber’s NPS account under a Corporate NPS account. To take advantage of the corporate NPS benefit, a company must first register for it. Under the same Permanent Retirement Account Number, you have the option of opening two sub-accounts (PRAN). Tiers are the terms used in NPS to describe these sub-accounts:
Tier I: It’s also referred to as a pension account. Section 80CCD allows you to deduct up to Rs. 50,000 in contributions to this account from your taxable income (1B). This is in addition to the section 80C restriction of Rs 1.5 lakhs. Withdrawals are limited and subject to certain restrictions.
Tier II: You can contribute more money to your Tier II NPS account. At any moment, a subscriber can remove his whole accrued corpus under Tier II. If you have not made even the initial donation to your Tier II account, it will be terminated immediately as per the protocol. There are no tax advantages with this account.
Features & Benefits of NPS
- Early Withdrawal and Exit rules
You must continue to invest in your pension plan until you reach the age of 60. If you have been investing for at least three years, you may withdraw up to 25% for specific reasons. These might include, for example, a child’s wedding or higher education, the construction or purchase of a home, or medical care for oneself or a family member. You can withdraw up to three times (with a five-year interval between each withdrawal). Only tier I accounts are subject to these limitations; tier II accounts are not.
- Risk Assessment
The National Pension Scheme now has a limit on equity investment ranging from 75 per cent to 50 per cent. This ceiling is set at 50% for government personnel. Beginning the year, the investor becomes 50 years old, the portfolio’s equity portion will be reduced by 2.5 per cent per year in the prescribed range. On the other hand, the cap is set at 50% for investors over the age of 60. This protects the corpus from stock market volatility by stabilising the risk-return equation in investors’ best interests. When compared to other fixed-income schemes, NPS has a larger earning potential.
How to open an NPS account
You may enrol in the NPS on our website in a paperless procedure from the comfort of your own home or workplace. The scheme’s main goal is to give all Indian people an appealing long-term savings option for planning for retirement through safe and acceptable market-based returns. All Indian citizens between the ages of 18 and 65 can establish an account.
Steps for online account opening:
You may join NPS by selecting the ‘Apply Now’ option from the NPS menu (National Pension System). You will be given an online form to complete with essential information. Your registration (account opening) will produce an acknowledgement ID. Based on the acknowledgement number search, there will be an option to finish the registration (account opening form) later, but within 15 days.
Modes of KYC verification
Pan-based – The bank will check your KYC based on the information in your bank account. As a result, the information entered in NPS should match the information in the bank account. Offline Aadhaar KYC – KYC information will be retrieved from the UIDAI database. You must share information such as bank account information, scheme information, nominee information, and so forth.
You must submit a photograph, a specimen signature, a cancelled check, a bank statement, a copy of your passbook, and your PAN in the file size allowed. You must make a minimum payment of Rs. 500. You will be taken to an online payment platform where you can finish the transaction using Net Banking or a payment gateway.
Following successful payment, you will be assigned a 12-digit PRAN, and a PDF form will be created based on the information provided. PRAN will be sent to you through email and SMS if you have provided your contact information. E-Sign/OTP – After completing the registration procedure, you will be required to complete an online e-sign or OTP-based confirmation. This is to prevent having to submit a registration form by hand.
As a result, if the following benefits match your risk profile and investment aim, you should consider participating in the NPS plan. However, if you want greater equity exposure, several mutual funds appeal to investors from many walks of life.