National Pension Scheme

  1. Introduction
  2. About the Scheme
  3. Advantages of NPS
  4. Models under NPS
  5. All citizen model
  6. Eligibility
  7. eNPS – Online Subscriber Registration and Contribution Facility under NPS
  8. Government model
  9. Corporate model
  10. Who can join
  11. Changes
  12. Implications

Introduction

  • National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.
  • NPS seeks to inculcate the habit of saving for retirement amongst the citizens.
  • It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
  • Under the NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of government bonds, bills, corporate debentures and shares.
  • These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
  • At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empanelled life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
  • The limit of deduction u/s 80CCD of the Income-tax Act on account of contribution by the employee to National Pension Scheme (NPS) has been increased from Rs. 1 lakh to Rs. 1.50 lakh.
  • A deduction of Rs. 50,000/- over and above the limit of Rs. 1.50 lakh to any individual who makes contribution to NPS has been allowed.

What is National Pension System (NPS)?

  1. It is a government-sponsored pension scheme.
  2. It was launched in January 2004 for government employees.
  3. However, in 2009, it was opened to all sections.
  4. The scheme allows subscribers to contribute regularly in a pension account during their working life.
  5. On retirement, subscribers can withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement.
  6. This system is managed by PFRDA (Pension Fund Regulatory and Development Authority).

Advantages of NPS

Flexible- NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow.

Individuals can switch over from one investment option to another or from one fund manager to another subject, of course, to certain regulatory restrictions.

The returns being totally market-related.

Simple – Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime.

The scheme is structured into two tiers:

Tier-I account:

This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.

Tier-II account:

This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber.

The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.

Portable- NPS provides seamless portability across jobs and across locations, unlike all current pension plans, including that of the EPFO. It would provide hassle-free arrangement for the individual subscribers.

Regulated- NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust.

Models under NPS

To cater to various categories of people, there are several models of NPS.

They are

  1. All citizen model
  2. Government sector model
  3. Corporate model
  4. Atal Pension Yojana

Eligibility

  1. A citizen of India, whether resident or non-resident, subject to the following conditions:
  2. Applicant should be between 18 – 65 years of age as on the date of submission of his/her application to the Point of Presence – Service Providers (POP/ POP-SP).
  3. Applicant should comply with the Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form.
  4. All the documents required for KYC compliance need to be mandatorily submitted.

Government model

  • An employee is mandatorily covered under National Pension System (NPS) if

S/he has joined the services of Government of India on or after 01-01-2004 (except Armed Forces) OR

  • S/he is an employee of a Central Autonomous Body who has joined on or after 01-01-2004.

Corporate model

Corporate Model is available to any of the entities as under:-

  1. Entities registered under Companies Act
  2. Entities registered under various Co-operative Acts
  3. Central Public Sector Enterprises
  4. State Public Sector Enterprises
  5. Registered Partnership firm
  6. Registered Limited Liability Partnership (LLPs)
  7. Any Body incorporated under any act of Parliament or State legislature or by order of Central / State Government
  8. Proprietorship Concern
  9. Trust/Society

The employees of the corporate entity, enrolled by the employer having Indian Citizenship between the age of 18-65 years and complying with the KYC norms, are eligible to be registered as subscribers under NPS.

National Pension Scheme

Who can join NPS?

  1. Any Indian citizen between 18 and 65 years can join NPS.
  2. An NRI can join NPS.
  3. However, the account will be closed if there is a change in the citizenship status of the NRI.
  4. Now, any Indian citizen, resident or non-resident and OCIs are eligible to join NPS till the age of 65 years.

National Pension Scheme

Changes approved in the National Pension System:

  • Mandatory contribution by the Central Government enhanced by 4 percent from the existing 10 percent to 14 percent for employees covered under NPS Tier-I
  • Central government employees will be provided with freedom of choice for selection of Pension Funds and pattern of investment.
  • Payment of compensation for non-deposit or delayed deposit of NPS contributions during 2004-2012
  • Contribution by Government employees under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs 1.50 lakh for the purpose of income tax at par with schemes such as General (PF), Contributory PF, Employees PF and Public PF, with lock-in period of 3 years.
  • The entire withdrawal will now be exempt from income tax as the tax exemption limit for lump sum withdrawal on exit has been enhanced to 60 percent.

Implications:

  • The move is set to benefit around 36 lakh subscribers, including approximately 18 lakh Central government employees covered under NPS.
  • It will cost the exchequer Rs 2,840 crore in the current financial year.

Can a Non Resident Indian (NRI) join NPS?

Yes, an NRI can join NPS. However, the account will be closed if there is a change in the citizenship status of the NRI.

National Pension Scheme