Here in this blog post, we have described the National pension scheme in complete detail and what does Invest In NPS mean ?
Who doesn’t want to become financially secure and stable in old age, where people do not possess a constant source of income? Even after getting retired, people want to live with full pride and confidence without making any compromises in their living standards.
The government launched this particular scheme in January 2004, but earlier it was applicable only to the government sector (for those who have been working in government organizations). But in 2009 onwards, it got extended for all the sections of the society incorporating the workers under unorganized sectors on voluntary contracts.
As a member of this scheme, one can create their pension account and make their contributions to it while they are in working mode. Once they get retired, then they can withdraw the deposited lump sum amount (A single payment of money) but to a few percentage and can utilize the rest of the amount saved in the account as a constant income source.
According to the findings of United Nations Population Division, the life expectancy of the world population is getting increased by 10 years, i.e. from 65 years of age to 75 years of age by the year 2050. Since we are advancing in the medical field, the progress in health maintenance and improved sanitary conditions have increased the overall life expectancy. This simply infers to the fact that the living cost and life expectancy would increase.
Also, the importance of retirement planning would become vital as a part of life. National Pension Scheme is a well-framed Pension system launched by the Indian government that is based on defined contributions. It has various objectives which are mentioned below:
- It provides a fixed amount of income to old age population in India
- In the longer run, it provides plausible market returns
- It makes sure to provide financial security especially to the old age citizens of our nation
Once an individual has decided to join the National Pension System, he/she is allotted a unique Permanent Retirement Account Number (PRAN). This allotted number does not change throughout the entire life of an individual. This number can be used by the individual regardless of any place in India.
Regulator and entities for NPS
Unlike the functioning of any particular company where all the essential functions are performed by one entity, NPS has a proper architecture that has a value chain and each step is unlinked to the others. This has one of the biggest advantages that it allows minimization of any misspelling of the product. There are various entities and regulators for National Pension Scheme that has been discussed below:
- Pension Fund Regulatory and Development Authority (PFRDA): It is an independent body which is established by the Indian Government for developing and regulating the pension schemes in the nation.
- Point of Presence (POP): These are the first interaction points to a subscriber who wishes to join NPS. There are around 58 authorized institutions which include public sector banks, private financial institutions, private sector banks and the Department of Posts for the opening of the NPS accounts of Indian citizens as well as others.
- Central Recordkeeping Agency (CRA): The administration procedures, recordkeeping, and customer care services related to the subscribers are managed by the National Securities Depository Limited (NSDL).
- Annuity Service Providers (ASPs): These play a role in providing the monthly regular pension to the subscriber once they are not a member of NPS i.e. After retirement these will provide a regular pension to the people.
National Pension Schemes – Types
With the help of PRAN, you can access two personal accounts which are mentioned below:
1. Tier I account: It is a type of savings account maintained for retirement from which the money could not be withdrawn or one can withdraw a certain amount of money under limits.
Before 60 years of age, one can only withdraw only 20 percent of his/her contribution. Rest 80 percent has to be used in buying an annuity from any life insurance company.
Also, once an individual has crossed the age of retirement, one can withdraw 60 per cent contributions and rest 40 per cent has to be utilised for investing in purchasing the annuity from any authorised life insurer.
2. Tier II account: it is a service provided to the subscriber for making savings as per his/her own choice. The subscriber could easily withdraw the amount of money whenever required. However, there is no tax benefit on this account.
NPS – Requirements
Well, any citizen of India can join the National Pension Scheme who is between the age of 18 years to 60 years. One of the most essential conditions for joining NPS is that the KYC norm of the customer has to be fulfilled by the subscriber.
Also, anyone who is not a citizen of India could also be a part of national pension scheme but if there is any modification observed in the current citizenship of the individual, then the pension account automatically gets closed. i.e. The person should not change the citizenship from
There is an entity called Point of Presence (PoP). With using these entities, one must open an NPS account. PoPs are present in almost all the banks, be it private or public. There are various financial organizations and institutions that work as PoPs. The collection points become those that are authorized branches of PoP which is called as Point of service providers (POP-SPs).
The documents that are required for opening of NPS account are the registration form which is to be filled by the subscriber and along with this mandatory form, one has to submit an identity proof, residential address proof and proof of date of birth to the PoP.
NPS Account – Opening
One can either register for the same through online mode or offline mode. In case of the offline method, you have to simply go to any POPs as appointed by PFRDA.
For online processing, one has to follow the
One has to upload a scanned signature if you have opted for registration through Aadhaar. The investment can be made through NET banking from any account. If you have opted for Aadhaar based KYC, then there is no requirement of delivering the physical form. Rather, one can simply e-sign and NPS form can be filled online.
After this, the printout could be taken and within 3 months duration (90 days), you can send the form to CPRA.
Other than this, one can also provide the PAN number and bank account details for completing the authentication process as per KYC norms.
Can an individual get access to more than one NPS account?
The answer is no. No individual is allowed to open more than one NPS account. Since the NPS is completely transferrable to different locations and regions, there is no need to open a second account.
What is the minimum required contribution for NPS account and what if someone doesn’t pay it on time?
It is very important to know that an individual has to contribute at least a minimum of 6000 rupees in Tier I account per year. If someone is unable to contribute to this particular amount, then one’s account may get frozen. After this, to unfreeze your account, you have to visit PoP and submit the required amount along with a fine of 100 rupees additionally.
What are the available investment choices under the National Pension Scheme?
The NPS provides two options out of which one can select any one which is mentioned below:
1. Active choice in which the person who is investing money has the authority to make a decision for where he/she wants to invest money in purchasing various assets or how to utilize the money.
Under this, one can have three investment choices: Asset Class E (in which 50 per cent stocks are invested), Asset Class C (in which along with government securities, one can invest in fixed income ways) and Asset Class G (in which the customer can only invest in government securities). The individual who is investing money could opt for any of these three choices as well as can go for choosing a combination of any two.
2. Auto choice or lifecycle fund which is a default choice in which as per the age of the customer, the money automatically gets invested.
Also, an individual can make changes in the investment choices but only for once in the financial year for both the NPS account. Furthermore, one can also make modifications in making a preference for schemes and can change your pension fund manager also.
Pension Funds M
Pension fund managers are the individuals or the organizations that make important decisions regarding any investment according to the funding goals. So, while you have decided to open an account, it is important to choose a fund manager for yourself. In NPS, the pension fund managers have increased in number and there are 9 pension fund managers under NPS which are mentioned below:
- SBI Pension funds
- LIC pension funds
- Kotak pension fund
- Reliance capital pension fund
- UTI retirement solutions
- Birla Sun Life Pension Fund
- HDFC pension fund
- ICICI Prudential pension fund
What do you mean by Annuity?An annuity is a means to give regular income at a particular rate for a particular period of time as selected by the customer. In NPS, as per rules, the customer has to spend 40 per cent
of his corpus in purchasing an annuity. It refers to the fact that the person could pay the money to Annuity Service Provider (ASP) and opt for any annuity choice for assuring to get a constant income post retirement. There are 7 ASP’s which are registered under PFRDA which are mentioned below
- Life Insurance Corporation of India
- SBI Life Insurance
- ICICI Prudential Life Insurance
- Bajaj Allianz Life Insurance
- Star Union Dai-ichi Life Insurance
- Reliance Life Insurance
- HDFC Standard Life Insurance
Benefits of National Pension Scheme
There could be several advantages of national pension schemes which have been discussed below:
- Additional benefits on tax
Under section 80CCE, the finance bill allowed the employer to pay 10 per cent of his/her salary and a dear allowance towards the employee’s national pension system account and in return, the tax deduction could occur. If the contributions are on the part of the employer, then this benefit could be availed and this is one of the reasons behind the liking of NPS among corporate businesses.
- The intermediaries are now getting higher pay
The nongovernmental funds have been increased from 0.0009 per cent of assets under management to 0.25 per cent. The government funds fee is also modified to 0.0102 per cent from April in this year.
Therefore, the novel pension scheme is greatly beneficial for the fund managers as well as the distributors as it offers good incentives to these parties.
Limitations of National Pension scheme
In contrary to the above advantages, there could be certain limitations of the national pension scheme which are mentioned below:
- Taxation during withdrawal
The information is unclear on a part that the withdrawal involves taxes to be paid. As per current legalizations, 60 per cent of the amount can be withdrawn from the account; however, the rest 40 per cent has to be utilized in buying an annuity for retirement. Currently, the returns that an individual receives from insurance plans are not tax-free.
- Compulsory annuity
There is a limitation that even on maturity, the individual or the subscriber could only withdraw 60 per cent of the corpus and rest must be utilized for buying the annuity for which the taxes have to be paid.
- Decreased equity
For longer periods of time, the national pension scheme has proven to be less beneficial especially for the individuals who are in their 20s and 30s. it is because they have to pay taxes for a longer period of time and the return they receive is about 12 to 15 per cent only. When we analyze other pension schemes available, NPS works best because it has a flexible approach in relation to exposure to equity.