NPS or National Pension Scheme is a voluntary and long-term investment plan for retired people in India. The Central Government and Pension Fund Regulatory and Development Authority (PFRDA) have jointly constituted the NPS.  

This scheme was launched in 2004 by the Union Government to primarily cover the central government employees. It was opened for all citizens in 2009. 

What exactly is NPS?

National Pension Scheme is a type of pension scheme launched for the employees from the public, private and unorganized sector which serves as a social security initiative of the Central Government. However, the coverage does not include the army personnel.

This scheme works on the principle of constant investment in the employees’ pension account periodically out of which they can withdraw a portion of it after their retirement. Investors will also get the remaining amount as monthly pension after they retire.

As this was previously a Central Government initiative, only the Government of India employees were entitled to NPS. However, with PFRDA joining the fray, all Indian citizens are now eligible to opt for NPS on a voluntary basis.

This is a massive relief for the private sector employees who usually aren’t entitled to any pension privileges and require a regular pension after retirement. You can also avail NPS tax benefit under sections 80C and 80CCD. This scheme is very much portable across different job locations as per your posting.

How to open an NPS account?

Generally, the PFRDA regulates the NPS account. Applicants can open their NPS account both online as well as in the offline mode. The procedure has been described in the steps below.

NPS Offline

●  To open an NPS account, applicants need to visit a bank.

●  The individual interested in opening an NPS account in offline mode has to collect a subscriber form.

●  Then he needs to fill it up and submit it along with the KYC papers.

●  The applicants have to make an initial investment of at least Rs. 500 to start with.

● The bank will send him a permanent retirement account number and a password sealed in your welcome kit.

● There is a registration fee of Rs.125 for this offline procedure.

NPS Online 

●  The individual opting for the online mode of NPS needs to link his account with his PAN or Aadhar Card. Linking the account with his mobile number will also do.

●  Validate the registration using the OTP sent to your mobile.

●  This will generate a PRAN which applicants can use as their NPS login.

●  The entire process takes about half an hour.

NPS Calculator

To reach the desired corpus post maturity of the scheme, you need to know how much monthly contribution is needed now. This is where a tool like NPS calculator can help you compute this value with accuracy - it als factors in the NPS returns

All you need to do is to put current and retirement age and monthly contribution towards your NPS account. The total investing period is fixed which is your retirement age to current age. You can also put the expected rate of NPS returns on investment. This will give you a detailed picture of your NPS statement.

To avail the maximum NPS tax benefit, account holders can contribute Rs. 50,000 towards their NPS account along with 10% of their basic plus DA of your salary to corporate NPS.

Features of NPS

There are several features of NPS that make it stand out among others. Some of them are:

Returns

A portion of the fund goes to equities which may not guarantee higher returns but still, the return on investment is much higher than other schemes like PPF. It has consistently provided rate of returns at 8 to 10% over the last decade. Applicants can switch to a different fund manager if they find the performance to be unsatisfactory.

Risk Assessment

Currently, there’s a cap of around 50 to 75% for equity exposure. The cap on government employees is fixed at 50%. In this range, the equity portion will decrease by 2.5% till the investor reaches 50. However, it is fixed at 50% for an investor who is 60 and above. This manages the risk-return and the portion to be withdrawn also becomes safe from equity market volatility.

Withdrawal and exit

Applicants can’t withdraw the full amount after retirement. They are requested to keep aside at least 40% of their investment for a regular pension from a PFRDA registered firm. However, the best thing is that the remaining 60% is completely tax-free. This allows a higher pension post 60.

Additionally, this scheme allows individuals to withdraw 25% of their investment for certain purposes like children’s wedding, higher studies, meeting emergency medical expenses, etc. but only if an account holder has invested for a period of at least 3 years. He can withdraw a portion of his investment for a cumulative total of three times but those have to be at a gap of minimum 5 years.  

There are generally 2 types of NPS accounts, namely, Tier 1 and Tier 2. The basic difference between them is the provision of tax exemption. Tier 1 holders are eligible for tax exemption up to Rs. 2 lakh which covers all citizens. But Tier 2 holders are eligible for exemption up to Rs. 1.5 lakh but is only for government employees. There are several NPS schemes that are available from different insurance agencies. Don’t forget to check your NPS account balance by going to your nearest branch where you have started the deposit or you can check online as well by logging in to your account by your username and password and clicking on the transaction statement. Read the terms and conditions carefully. All you need to do is choose the right one and start investing for a happy and secure post-retirement life.