National Pension System (NPS)-Features and Benefit

What is National Pension System (NPS)?

The National Pension System (NPS) is a voluntary defined contribution pension system administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), created by an Act of the Parliament of India. The NPS started with the decision of the Government of India to alter defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India in 2009. NPS is an attempt by the government to create a pensioned society in India. Today, the NPS is readily available and tax efficient under Section 80CCC and Section 80CCD. Under the NPS, an individual can contribute to his retirement account. Also, his employer can contribute to the welfare and social security of the individual.

 

Highlights of National Pension System: -

Portability: The Permanent Retirement account number (PRAN) provided under NPS is portable across employers and geographies. Subscriber can shift their PRAN from one employer to another and can continue the contribution even when he is not actively engaged with any employer.

Customized Investment Option: NPS has multiple options of Fund managers and Asset classes as well as investment choices. NPS also provides the option to change the Fund managers (once) and scheme (twice) in a financial year. Enjoy professional fund management under the guidance of PFRDA at a much lower rate.

 

Pension Fund Managers as on date:

• SBI Pension Funds
• LIC Pension Fund
• UTI Retirement Solutions
• HDFC Pension Fund
• ICICI Prudential Pension Fund
• Kotak Pension Fund
• Birla Sun Life Pension Management Ltd

Scheme Preference:

• Equity (Upto 75%)
• Corporate Bonds
• Government Securities
• Alternate Investment Fund (Not more than 5%)

Additional Investment Account: NPS provides two types of accounts

Tier I also known as Pension Account

• Mandatory retirement account

 

Tier II also known as investment

• Account Voluntary saving account.
• No registration charges and No AMC.
• Anytime withdrawal.

 

Market Linked Return: Investment in NPS is “Mark to Market” and return is based on the subscriber’s preference of investment option available. With more equity exposure, one can beat the inflation and generate more return than usually Superannuation fund generates.

 

Exclusive Tax Benefits: There are exclusive tax benefits associated with a NPS account.

These exclusive tax benefit available in NPS helps a subscriber reap benefits of Higher Savings and better corpus accumulation.

The tax benefits are explained below: -

I. Employee Contribution: Employee’s contribution is eligible for tax deduction u/s 80 CCD (1) of Income Tax up to 10% of salary (Basic+DA). This is within the overall ceiling of Rs. 1.50 lacs under section 80 CCE of the Income Tax.

II. Exclusive Tax Benefit for NPS: Additional tax deduction available on contribution up to Rs.50,000/- under section 80 CCD (1B).

 III. Employer contribution: The contribution in NPS by the employer in employee account up to 10% of Basic+DA is exempt from tax u/s 80CCD (2). This section is available to NPS with no monetary limit.

 

Cost Structure: Till retirement, pension wealth grows with a compounding effect. While saving for long term goal of 30-35 years, higher charges can shave off a significant amount from the corpus. The account maintenance costs under NPS are the lowest as compared to similar pension products available in India. The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become considerable.

 

Option of Partial Withdrawal: NPS provides an option to partially withdraw from pension account (Tier-I) in case of specified conditions and subject to withdrawal guidelines as prescribed by PFRDA.

 

Easy Exit Options: NPS allows a subscriber to continue the account even after the age of 60. Thus, allowing a subscriber to stay invested till the age of 70. The subscriber has an option to defer the purchase of Annuity as well as Withdrawal of Lump-sum amount.

 

Ease of Access: NPS provides options to get services easily and conveniently through its service provider. These same services can be accessed online. NPS services are available on NPS mobile application, enabling one to manage his NPS account anytime and anywhere.

 

A subscriber can carry different functions like, contribution, modify investment option, activate and withdraw Tier-II account online.

Updating important user information like, phone number and email address is enabled online.

View your transaction statement and download it. A subscriber can also request the same by calling dedicated toll-free number.

Online exit request processing.

Log in your complaint/queries and track the status online