New Pension Scheme – NPS

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.