About National Pension Scheme (NPS): An Insight
National Pension Scheme (NPS) is introduced by the Government to provide better Social Security to the Individuals after retirement and help them lead comfortable life. The National Pension Scheme (NPS) was launched on 1st January,2004 and was made mandatory for all Central Government Employees. Since 2009 the Scheme has been opened for all the citizens between 18 years to 60 years. The NPS is managed by Professional Fund Managers. Now even various State Governments and Corporate entities have also subscribed to the scheme for the benefit of their employees.
Pension Fund Regulatory and Development Authority (PFRDA) was formed in 2003 by the Government of India to manage and regulate the Funds under the Scheme. The professional fund managers invest the contribution of the subscribers in equities, government bond and other fixed return instruments so that they can provide the Subscribers with best return on the Investment.
The minimum contribution for non government employees is Rs 6,000/- annually. The Central Government deducts 10% of Basic Pay, Dearness Allowance from the Employee’s salary and makes an equal contribution to the fund.
The Employee Pension Fund (EPS) has got two tiers, namely Tier 1 and Tier II.
Tier Iis compulsory contribution from the Government Employees and is open to other of the citizens as well.
Tier IIis only available if the Individual is already contributing in the Tier I Scheme and offers more flexibility in withdrawals but does not provide any additional benefit apart from the returns on contribution.
National Pension Scheme has got three Investment Options:
E Class: Investment into Equities. (Maximum up to 50% of contribution can be invested)
G Class: Investment into Government Securities. (Quantum of Investment Depending on Choice of Investor)
C Class: Investment in Fixed Return Securities. (Quantum of Investment Depending on Choice of Investor)
Investors have the option to chose the class of Investment for them. They can also diversify contribution among the 3 classes but only maximum of 50% can be contributed in E Class.
Investment Management Charge is also very nominal.
The Fund cannot be withdrawn before the age of 60, however if an individual avails voluntary retirement he/she may do so. But they have to invest 80% of the return in purchasing a pension annuity from an IRDAI regulated Life Insurer and the rest can be withdrawn as lumpsum.
On exit from the Scheme after 60, Individual will have to invest atleast 40% of the savings to purchase a pension annuity while the rest could be withdrawn as lumpsum.
If the Contributor does not withdraw from the scheme by the age 70, then the entire accumulated investment will be transferred to the respective bank account as full and final settlement.
On attaining the age of 60, Individual can no longer contribute in the Scheme. However the accumulated investment can be kept in the scheme till the age of 70 years and will continue to earn returns on it.
The Investment in National Pension Scheme is eligible for Tax Deduction U/S 80 CCD (1B) for Rs 50,000 up and over the Deduction available U/S 80C of Rs 1,50,000/- from the Financial Year 2015-16.
Investment to NPS can be made through Bank Branches.
The return on Investment is variable but the past record shows that return on Investment is in the range of 8% to 13% which is pretty good.
OPINION ON NATIONAL PENSION SCHEME (NPS)
In my opinion, Investment in National Pension Scheme (NPS) is a viable option as it offers good returns on investment along with additional tax benefit on Investment. Furthermore, with Investment being managed by Professional Fund Managers it is bound to do well in future as well.