National Pension Scheme

Retirement planning is all about making sure you have enough money saved to live comfortably once you stop working. One helpful option for this in India is the National Pension System (NPS). It's a pension scheme supported by the government that helps people build a steady income for their retirement years. The NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA), which makes sure everything runs smoothly. It offers several benefits like saving on taxes, choosing how you want to invest your money, and growing your savings over the long term. This makes NPS a smart and flexible way to plan for a secure future.

What is NPS?

The National Pension System (NPS) is a voluntary retirement savings scheme introduced by the Government of India. It encourages individuals to contribute systematically to their retirement fund, which is invested in market-linked instruments managed by professional fund managers. Upon retirement, subscribers can withdraw a portion of their accumulated corpus and use the remaining funds to purchase an annuity for regular pension income.

Key Features of NPS

• Multiple Investment Options
  • Active Choice: Allows subscribers to decide the proportion of investment in different asset classes like equities, corporate bonds, and government securities.
  • Auto Choice: Ideal for those who do not want to actively manage their investments, as funds are automatically allocated based on the subscriber’s age.
• Two Types of Accounts
  • Tier I Account: This is the primary retirement account with restrictions on withdrawal before retirement. It offers tax benefits and long-term investment growth.
  • Tier II Account: This is a voluntary savings account that allows withdrawals at any time without restrictions. However, it does not offer tax benefits.
• Tax Benefits
  • Contributions up to ₹1.5 lakh per year are eligible for tax deductions under Section 80CCD(1) of the Income Tax Act.
  • An additional deduction of ₹50,000 per year is available under Section 80CCD(1B), making NPS an attractive tax-saving investment.
  • At retirement, 60% of the corpus withdrawn is tax-free, while the remaining 40% used to purchase an annuity is taxable as per income slab.
• Flexible Contribution
  • Minimum yearly contribution for a Tier I account is ₹1,000, while there is no mandatory contribution for the Tier II account.
  • Subscribers can decide their own contribution amount and frequency.
• Market-Linked Growth: Unlike traditional pension schemes, NPS investments are linked to the market, allowing the possibility of higher returns over the long term.
• Portability: NPS is portable across jobs and locations, making it an ideal choice for working professionals who change employers frequently.
• Annuity Options at Retirement
  • Upon reaching 60 years of age, subscribers must use at least 40% of the corpus to purchase an annuity, ensuring a stable income stream post-retirement.
  • The remaining 60% can be withdrawn as a lump sum, tax-free.

Eligibility Criteria

• Indian citizens (both residents and NRIs) and Overseas Citizens of India (OCI) can enroll in NPS.
• Individuals aged between 18 to 70 years can join the scheme.
• KYC compliance is mandatory at the time of registration.

How to Open an NPS Account

• Choose a Point of Presence (PoP) – Banks and financial institutions authorized to handle NPS registrations.
• Fill out the Registration Form – Provide personal details, nominee information, and investment preference.
• Submit KYC Documents – Identity and address proof are required for verification.
• Receive Permanent Retirement Account Number (PRAN) – This unique number will be used for all future NPS transactions.
• Start Investing – Make an initial contribution and set up regular payments as per your financial goals.

Types of NPS Accounts

Recent Updates on NPS

As of August 2024, the Government of India has announced the Unified Pension Scheme (UPS), which guarantees 50% of the last drawn salary as pension for federal employees, shifting away from the NPS structure that was market-linked. While UPS is only applicable to government employees, NPS continues to be a solid retirement planning tool for the general public.

NPS Eligibility Criteria

Government Sector NPS

• Available to state and central government employees (excluding armed forces personnel).
• Contribution: 10% of salary by employees; 14% by the central government or 10% by state governments.
• Implemented in all Indian states except West Bengal.

Corporate NPS Model

• Employees of registered organizations can join.
• Eligibility:
  • Indian citizens aged 18-60.
  • Completion of KYC (Know Your Customer) formalities.

All Citizens Model

Open to any Indian citizen between 18-60 years.

Requires KYC verification and registration through authorized PoP service providers.

Documents Required for NPS Withdrawal

• Completed withdrawal request form
• Original PRAN (Permanent Retirement Account Number) card
• Attested identity proof
• A canceled cheque for bank verification

Objectives of the National Pension System

The National Pension System (NPS) was introduced by the Government of India to:

• Facilitate structured retirement savings for individuals.
• Encourage financial discipline by promoting long-term investments.
• Provide post-retirement financial security, ensuring a steady income.
• Support India's growing senior citizen population with a stable pension framework.

Is NPS Mandatory?

• For central government employees: NPS is compulsory, with a mandatory 10% salary contribution.
• For private sector employees and individuals: NPS is a voluntary investment scheme.

Key Benefits of NPS

• Market-Linked Growth – Investments in equities, corporate bonds, and government securities generate competitive returns.
• Tax Savings – Contributions qualify for deductions up to ₹2 lakh per year under Sections 80CCD(1), 80CCD(2), and 80CCD(1B).
• Flexibility – Subscribers can customize investment preferences and modify contributions.
• Portability – NPS accounts remain valid across job changes and geographic locations.
• Retirement Security – Upon reaching 60 years, up to 60% of the corpus can be withdrawn tax-free, while 40% is allocated for annuity purchase to ensure lifetime pension benefits.

KYC Document Requirements for NPS Enrollment

To enroll in NPS, the following documents are required:

• Subscriber Registration Form
• Photo Identification Proof (Aadhaar, PAN, Passport, Voter ID)
• Proof of Date of Birth
• Proof of Residence

NPS Customer Care Contact Information

• NPS SMS Service: Send ‘NPS’ to 56677
• Toll-Free Number for Registered Subscribers: 1800 222 080
• NPS Call Centre Helpline: 1800 110 708

NPS Ombudsman Contact:

Shri Narender Kumar Bhola
Pension Fund Regulatory and Development Authority (PFRDA)
B-14/A, Chhatrapati Shivaji Bhawan, Qutab Institutional Area, New Delhi - 110016
Email: ombudsman@pfrda.org.in
Landline: 011 - 26517507 Ext: 188

Frequently Asked Questions on the National Pension System (NPS)

• What are the features of the NPS app?
  The NPS app allows users to request transaction statements, check scheme-wise units, and update contact details.
• Can NRIs open an NPS account?
  Yes, NRIs aged between 18 and 60 years can join NPS if they meet KYC requirements.
• What are the minimum contribution amounts for Tier I and Tier II accounts?
  Tier I: Minimum ₹500 per month, ₹6000 annually.
  Tier II: Minimum ₹250 per month, ₹2000 annually.
• How is the withdrawal fund distributed to the nominee?
  The funds are electronically transferred to the nominee’s registered bank account upon approval.
• Can I make partial withdrawals from my NPS account?
  Yes, partial withdrawals are allowed under specific conditions.
• Who provides annuities under NPS?
  Annuities are provided by IRDA-licensed insurance companies authorized by PFRDA.
• How do I check my NPS account status in SBI?
  Log in to the SBI Life customer portal using your Customer ID and NPS policy number.
• Is NPS an accessible long-term investment?
  Yes, NPS is a cost-effective, flexible, and portable retirement savings scheme.
• What happens if the subscriber retires early?
  80% of the pension corpus must be used to purchase an annuity, and 20% can be withdrawn as a lump sum.
• Can I switch from active choice to auto choice in NPS?
  Yes, you can change asset allocations twice per financial year and switch fund managers once.
• What documents are required for NPS enrollment?
  - Subscriber registration form
  - Photo ID proof
  - Date of birth proof
  - Residential proof
• What is the customer care number for NPS?
  - SMS ‘NPS’ to 56677
  - Toll-Free Number (Registered PRAN): 1800 222 080
  - Call Centre: 1800 110 708