What do we know about the National Pension Scheme?

What is National Pension System?

The Pension Fund Regulatory and Development Authority (PFRDA), established by the PFRDA Act of 2013, is in charge of overseeing and administering the National Pension System (NPS).

NPS is a specified contribution product with a market relationship. The Central Recordkeeping Agency (CRA) creates and maintains a specific Permanent Retirement Account Number (PRAN) for each subscriber under the NPS.

The two account categories that NPS offers are Tier-I and Tier II. The pension account with limited withdrawals is known as a Tier-I account. A voluntary account called Tier-II provides investment and withdrawal liquidity. Only when the subscriber’s name appears on an active Tier-I account is it permitted. Over time, contributions build up until retirement increases with market-linked returns.

A minimum of 40% of the corpus must be used, upon departure, retirement, or superannuation, to obtain a pension for life by purchasing an annuity from a life insurance firm. The remaining corpus must then be paid out as a lump payment.

 

What are the Benefits of the National Pension Scheme?

The following advantages are provided by an NPS Account:

1. Regulated: PFRDA (Pension Fund Regulator, Ministry of Finance, Government of India), which provides transparent regulations controlling the operations, regulates NPS. NPS Trust monitors compliance with the rules regularly.
2. Voluntary: It is a volunteer program available to all Indian nationals. Any money, at any time, may be invested in your NPS account.
3. Flexibility: You have the freedom to choose or modify the fund manager, POP (Point of Presence), and investment strategy. This guarantees that you may maximize profits based on your comfort level with different asset classes and fund managers (equity, corporate bonds, government securities, and alternative assets).
4. Economical: NPS is one of the most affordable investing options.
5. Portability: Regardless of changes in work, city, or state, NPS accounts or PRANs will stay the same.
6. Transfer of Superannuation Funds: NPS account holders are not subject to tax consequences when transferring Superannuation Funds to their NPS accounts. (Following endorsement by appropriate authorities). 

 

What is the National Pension Scheme for?

Anyone who wants to start planning for retirement early and has a low tolerance for risk should consider the NPS. It goes without saying that having a steady pension (income) throughout your golden years will be a blessing, especially for those who leave private-sector employment.

A methodical investment like this can significantly impact your life after retirement. In fact, salaried individuals who desire to maximize their 80C deductions can also take this plan into consideration.

 

Assessment of Risk

Currently, the National Pension Scheme’s equity exposure is capped between 75% and 50%. The ceiling for government workers is set at 50%. The equity component will decrease by 2.5% per year in the range specified starting in the year the investor reaches 50.

However, the maximum is set at 50% for investors 60 years of age and older. As a result, the risk-return relationship is stabilized in the interest of investors, protecting the corpus to some extent from the volatility of the equity market.

NPS has a larger earning potential than other fixed-income plans.

What is the Eligibility for the National Pension Scheme?

Anyone who meets the qualifying requirements listed below may join NPS:

1. Ideally, they should be an Indian citizen (resident or not) or an Indian citizen abroad (OCI).
2. should be between the ages of 18 and 70.
3. The application form’s Know Your Customer (KYC) requirements must be followed.
4. According to the Indian Contract Act, one must be able to lawfully sign a contract.
5. Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) are ineligible to enroll in NPS.
6. Since NPS is an individual pension account, a third party cannot create one on their behalf.

 

How can we open a NPS Account?

The NPS is governed by the Pension Fund Regulatory and Development Authority (PFRDA), which also provides offline and online options for opening an account.

1. Offline

You will need to locate a PoP – Point of Presence, which might also be a bank, that is registered with the PFRDA to start an NPS account manually or offline. Pick up a subscription form from the PoP closest to you, then turn it in with the KYC documents. If you have previously met the bank’s KYC requirements, disregard them.

The PoP will provide you a PRAN – Permanent Retirement Account Number once you have made the initial contribution, which must be at least Rs. 500, Rs. 250 every month, or Rs. 1,000 per year.

You may manage your account using this number and the password in your sealed welcome package. A one-time registration fee of Rs. 125 is required for this procedure. 

2. Online 

An NPS account may now be opened in less than 30 minutes. If you link your account to your PAN, Aadhaar, and cellphone number, opening an account online is simple.

The OTP that was delivered to your mobile device can be used to verify the registration. Your PRAN (Permanent Retirement Account Number), which you may use for NPS login, will be generated as a result.