National Pension Scheme (NPS) was introduced on 01st May 2009. It is a voluntary retirement scheme introduced by the Government of India for the purpose of granting a pension to the subscribers. All the operations of the NPS are managed and regulated by Pension Fund Regulatory and Development Authority (PFRDA).
There are two plans under the scheme:
- Tier I scheme is purely a pension plan
- And Tier II is an investment plan.
Who can apply for the National Pension Scheme Tier 1 Plan?
- Any individual between the age of 18 and 65 years can opt-in into the scheme.
- The applicant should be a resident citizen of India or an NRI.
How to join the National Pension Scheme Tier 1 Plan?
- The National Pension Scheme account can be opened in any of the authorized bank branches also known as POP (point of presence) or online through enps.nsdl.com.
- The account can be opened with a minimum deposit of Rs. 500/-.
- The subscriber needs to submit the application form, KYC documents, etc to the branch.
- In order to register online under the National Pension Scheme, the subscriber needs to submit the online registration form along with valid Aadhar Number, a valid mobile number associated with the Aadhar number, a scanned image of signature and net banking account.
- The subscriber gets a unique 12-digit Permanent Retirement Account Number or PRAN once the account is opened. The PRAN card is delivered physically to the subscribers’ mailing address.
- The subscriber can also find the nearest POP from the NSDL website.
Features of National Pension Scheme Tier I Account
- Only one National Pension Scheme account can be opened by any individual.
- The subscriber is issued a Permanent Retirement Account Number which can be managed from anywhere.
- The National Pension Scheme account is portable from one fund manager to another.
- Minimum Rs. 500/- needs to be deposited in each financial year.
- The yearly premium amount is not fixed, which means that the subscriber can deposit any amount above Rs. 500/- for every financial year.
- If the account is not maintained with a minimum yearly deposit of Rs. 500/-, the account becomes inactive on such default. In order to revive the account, the subscriber needs to deposit minimum Rs. 500/- for each of the defaulted premium.
- Under the plan, the deposited amount is invested in equity markets and debt funds such as government securities and corporate bonds.
- At the time of retirement, the policyholder can avail monthly pension plus withdraw a lumpsum amount.
- The subscriber can opt to manage the account and its investment in each of the above funds with the Active choice option.
- The subscriber can also choose the auto choice option under which the funds are managed by the fund managers depending upon various factors such as age, market conditions, etc.
- If the subscriber chooses an active choice option, he or she can invest a maximum of 75% of the total invested amount in equity funds.
- The applicant gets long term and higher returns in comparison to other saving plans based on the equity component.
- The subscriber can choose to change the investment criteria from an action plan to an auto plan or vice versa maximum twice in any financial year.
- The subscriber can change the fund manager once in the financial year.
- The subscriber can avail tax benefit under section 80C up to a limit of Rs. 1,50,000/-.
- The subscriber gets an additional tax benefit of Rs. 50,000/- for investing in only NPS.
- The returns on investment are also exempted from tax.
- No tax is charged on the maturity amount or corpus money.
- In case of a contribution made by the corporate employer of the individual, such contribution is exempted from tax.
- The funds are managed by Pension fund managers who invest the money in the equity market and various securities.
- For the government sector employees, the pension fund is managed by UTI, LIC & SBI.
- For the private sector subscribers, the pension fund is managed by UTI, LIC, SBI, ICICI, HDFC, Reliance, Birla Sun Life, Kotak.
- Partial withdrawal can be made only after completion of 3 years and under special conditions such as the critical illness of self or dependent or for the higher education of children.
- The subscriber can withdraw a maximum of 25% of the investment made by self under such circumstances.
- Maximum 3 partial withdrawal is allowed from the date of joining the scheme till the date of retirement.
Maturity or Retirement
The subscriber gets three options on attaining the age of retirement:
- The subscriber can continue the investment up till the age of 70.
- The subscriber can deffer the corpus money till the age of 70 years.
- Exit from NPS with Monthly Pension and lumpsum amount. The subscriber can withdraw a maximum of 60% of the corpus money as a lump sum and the balance 40% is invested into an annuity plan and a monthly pension is granted to the individual.