New Pension Scheme is government of India initiative to extend pension benefits to citizens of India, at large. Any individual whether employed with private sector, self employed or professional can now avail of pension benefits and plan his/her retirement period well by enrolling in the New Pension Scheme (NPS).
One can regularly invest in this scheme and get a part in lump-sum on retirement and a fixed monthly income for the lifetime. NPS is based on a unique Individual Permanent Retirement Account Number (PRAN) created for individual subscribers. This number will remain the same for the subscriber’s lifetime irrespective of where he/she operates the NPS account from across the nation.
Currently, there are two plans under the NPS:
Tier 1 : Non withdrawal and tax deferred pension account (for all individuals)
Tier 2 : Withdrawal supported savings account without any tax advantages (for all individuals subjected to minimum deposits per year in Tier-1 account)
The subscriber also has to control on how his/her contributions(savings) are being managed by selecting a professional fund manager(PFM) from a pool of PFMs. Investor can either opt for Active Choice or Auto Choice. Under the Active mode, the subscriber can decide on proportion of investment to be made across different debt, equity and government securities. On the other hand, in the auto choice mode, the division across investments will be made by the authority based on subscriber age with equity allocation reducing as age increases.
There are 3 classes of investment to opt for in NPS, this is what they mean:
Class G : Investment would be in Government securities like Govt of India bonds and stage govt bonds.
Class C : Investment would be in fixed income securities other than govt securities
Class E : Investment would be primarily in equity market instruments. It would invest in Index funds that replicate the portfolio of either BSE Sensex or NSE Nifty 50 index.
However, the maximum exposure that can be taken in equity is up to 50%. With that the NPS subscriber can also select from the following seven pension fund managers (PFMs).
- SBI Pension Funds Pvt. Ltd
- UTI Retirement Solutions Ltd
- LIC Pension Fund Ltd
- IDFC Pension Fund Management Co Ltd
- Kotak Mahindra Pension Fund Ltd
- Reliance Capital Pension Fund Ltd
- ICICI Prudential Pension Funds Management Company Ltd
Contribution details under the NPS are as below:
Tier 1:
Minimum # of contributions : 4
Minimum contribution : Rs 2000/- pa
Minium contribution : Rs 500 per contribution
(The amounts mentioned here have been further revised downwards by PFRDA)
Tier 2:
Minimum contribution of Rs 1000 at the time of account opening
Minimum balance of Rs 2000 at the end of a financial year
Here is the list of documents that you need to open the NPS account:
2 copies of identity proof 2 copies of address proof Proof for Date of Birth Self declaration indicating that the applicant is not a pre-existing member of NPS Colored Passport size photograph For Tier 2 account, in addition to the above docs, you need to submit bank details and a cancelled cheque.
Exclusive benefits of NPS:
- Provides tax benefits under section 80C of income tax laws.
- Govt provided pension plan directly regulated by PFRDA.
- Portable plan, nation wide access to NPS over a period of time.
- Investment in NPS is highly safe and it contains very less amount of risk.
- NPS provides higher returns compared to other relative investment options
- Cost effective mode of retirement planning – cost structure is very efficient compared to that of the charges levied by mutual funds or other investment options.
In case of death due to any cause, the nominee will have the option to withdraw the proceeds in lump sum. Also, if the vesting age is less than 60 years, then 20% of the amount accumulated can be withdrawn and the balance 80% will have to be used to purchase annuity. On the other hand if the vesting age is 60 years or more but less than 70 years, then 60% of the amount can be withdrawn either as lump sum or in a phased manner between age 60 & 70. Balance 40% will have to be used to purchase annuity. If you are looking for safe returns at normal rate of growth towards pension, this scheme is for you! If you have more questions on your mind, feel free to visit this FAQ site of PFRDA.
{ 19 comments… read them below or add one }
Hi Mohan,
What is your take on NPS. Can you share your good and bad ” lists” for NPS. Should someone working in private sector go for it
Hi Abhinav, I will come up with that list soon in teh form of another article.
Hai, From where I can download / get the registration form. I found one in the Offer Document at PFRDA website, but it’s verry small fonts (not fillable)
good Afternoon sir
Iam the govt employee in state governmet i want to contribute under NPS
Is it possible to invest plz reply me
Ayyanagar, Mohan,
Sorry. I have to disagree. returns are not guaranteed in NPS. I am a govt employee and in my Tier I, only 15% is in Equity. I cant change it. Of course in Tier II its in my hand and I can have up to 50% equity.
My view is Govt limits exposure to equity since nothing is gauranteed in NPS
The earlier PF option is way way more safer. In that a govt employee remains an employee for life. Pensions will get DA enhancement periodically. In NPS all ties are severed at retirement with the govt and the annuity has to be got from SBI/LIC/UTI. As Shubra points out no one knows what the rates will be.
Dude Indian govt can be related very similar to a private company now a days.
Indian govt is:
1) Of people
2) By People
3) For politician/Party
Someone said: Politics is a lucrative business. Think about it….
Even if the returns may not be as lucrative as in some other schemes, this one is safe bet for future.
Absolutely…!
Hmmm. My husband was talking about the ICICI Prudential one too.
Well, there is a catch. If you buy directly with private players, you will have too many charges associated. But with NPS, the fund management charges would be bare minimal.
One of my phone banker called me and told me to take any pension plan as goverment is going to change the policy and these plans will not be available for free! I did not understand him but I do not see any mention of it in ur post! Am i missing anything here?
Vineeta, probably he was talking about the new tax code which will be in place starting next financial year. Still it is under discussion and we will have more info only after sometime!
HI Vineeta,
I want to invest in SBI Pension Plan, No wI heard that IRDA is changing the Policies Terms. This SBI Pensions Policy is available till Aug 31. I have got confusion on when to invest, i.e Now or after Aug 31. what would be the best choice?
Could you please suggest?
Regards,
Srikanth
Hello Mohan. Thanks for the reply and the useful link. Being a bit of a internet freak myself, i went about digging deep into the subject topic and found out the necessary information before seeing your reply here! I came back to thank you for the information. Thanks!
You are most welcome!
Hello. I checked with the PFRDA website and they said that this NPS scheme is extended to all the citizens of India irrespective of whether they hold a govt. job or not. I am not a govt. employee, yet i want to avail this scheme. Where do i apply?
Hi Rajesh, there are a number of service providers all over India operating through the so called PoP (Point of Presence), you can go through the list provided here.
Hello Mr. Mohan,
Will you please guide about the performance of the Fund Managers before I decide my choice of the Fund Manager for starting my NPS a/c.
Dear Manab, please refer to IRDA documents for information on the fund performance.
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