National Pension Scheme (NPS) : All Citizen Model (Series-1)
National Pension Scheme (NPS) was introduced by the Government of India in 2004. The scheme is aimed at the providing financial security to individuals post retirement. The Scheme has been made available for all the citizens since 2009. The scheme is designed to maintain a balance between return and risk, so that Individuals are protected from adverse market scenarios and also are able maximize their investment.
I have posted about the National Pension Scheme (NPS) in a nutshell previously. You may visit the link below to find out more:
In this post, I will discuss about the National Pension Scheme (All Citizen Model) in detail. I will refrain from discussing the Maturity Benefits, Withdrawal Tax Benefits, Types of Annuities and few other aspects in this post. The same will be taken up in the next series.
National Pension Scheme is open to all the citizens of India, irrespective of whether they are resident or non-resident and are aged between 18- 65 years at the time of subscription.
The scheme is administered on behalf of Government of India by Pension Fund Regulatory and Development Authority (PFRDA).
Any citizen of India, whether resident or non-resident aged between 18- 65 years at the time of subscription, may join the scheme either as an Individual or Corporate Group (Employee-Employer relation), subject to submission of all required information/forms and complying with Know Your Customer (KYC) document.
After attaining 70 years of age, you will not be permitted to make further contributions to the NPS account. However, One is allowed to withdraw on attaining the age of 60 years.
Subscription to the Scheme
Subscription to NPS may be made through designated branches of almost all the leading banks (both private and public sector) along apart from authorized financial institutions are enrolled to act as Points of Presence (POP’s). Individuals are required to open a NPS account through the Point of Presence (POP) and who will assist Subscribers with all the details, forms required to open the account.
The designated branches of Points of Presence (POPs) are the first point of contact for Subscribers. The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will not only act as collection points but will also be responsible for number of other customer services including withdrawal from NPS.
POP-SPs location can be accessed from the link mentioned below:-
Online Subscription (eNPS) is also available for Subscribers who wish to open their account online. Please visit the link provided below for more updates.
The following documents need to be submitted to the POP-SP at the time of Subscription to the Scheme:-
Registration Form (duly filled)
Cancelled Cheque of respective Bank
Subscription Amount (Rs 500/- minimum)
For e-NPS (Online), Subscribers have to submit the KYC documents to the respective bank branches.
Subscriber on submission of mandatory documents along with the initial subscription amount, will receive a 17 digit acknowledgement number from the respective POP-SP. This acknowledgement number is generated by Central Recordkeeping Agency (CRA). Subscriber may check the status of the application by using the acknowledgement number.
Link to check PRAN Status: https://cra-nsdl.com/CRA/
On generation of PRAN number (12 digit), notification will be sent on the registered mobile number and email id of the subscriber.
Types of Accounts
Under NPS, Subscriber have the option to invest in two types of Accounts, namely Tier-1 (Mandatory) and Tier-2 (optional).
Tier-I: It is mandatory for the Subscribers to open the Tier-1 account. The contribution to this account is non withdrawable and restriction are imposed on withdrawal. The contribution is eligible for Tax Deduction.
Tier-II: It is a voluntary investment account which does not have any withdrawal restrictions and contribution in this account is not eligible for Tax Deduction. It is an additional investment window for subscribers.
Minimum Contributions (For Tier-I)
Minimum Contribution on account opening and for all subsequent transactions: Rs 500/-.
Minimum Contribution per Year: Rs 1,000/-.
Minimum Number of Contribution in a Year: 01
No restriction on Maximum Contribution.
Minimum Contributions (For Tier-II)
Minimum Contribution on account opening and for all subsequent transactions: Rs 1000/- ( Account opening) and Rs 250/- (subsequently).
Minimum Contribution in a Year: Rs 2,000/- (Balance of Rs 2,000/- mandatory).
Minimum Number of Contribution in a Year: 01
No restriction on Maximum Contribution.
E Class: Investment into Equities. (Maximum up to 75% 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)
A Class: Investment in Mortgaged Securities and Infrastructure Units including Real Estate Investment Trusts approved by Securities Exchange Board of India (SEBI). (Maximum Investment capped at 5%.)
National Pension Scheme allows Private Sector Subscribers to chose their own allocation among the four Asset Class or opt for any one of the three Life Cycle Funds. It automatically allocates Contribution among 3 classes of Fund based on the age of the Subscriber. Subscribers have the option to switch funds once in a year.
Three Types of Life Cycle Fund
Conservative Life Cycle Fund (LC-25): It is the Conservative Fund which initially allocates 25% of the contribution to equity (E Class) upto the age of 35 years and gradually goes down to 5% at 55 years of age. The rest of the investment is allocated to Class G & C Assets.
Moderate Life Cycle Fund (LC-50): It is a Balanced Fund which initially allocates 50% of the contribution to equity (E Class) upto the age of 35 years and gradually goes down to 10% at 55 years of age. The rest of the investment is allocated to Class G & C Assets.
Aggressive Life Cycle Fund (LC-75): This fund provides the maximum exposure to Equity with 75% allocation to E Class up to the age of 35 years which gradually comes down to 15% by 55 years of age. The rest of the investment is allocated to Class G & C Assets.
Investment Management Charge is also very nominal in NPS.
Subscriber has the option to select any one from the following Pension Fund Managers to manage their Investment:-
LIC Pension Fund
ICICI Prudential Pension Fund
Kotak Mahindra Pension Fund
Reliance Capital Fund
SBI Pension Fund
UTI Retirement Solutions Pension Fund
HDFC Pension Management
DSP Blackrock Pension Fund
SBI Pension Fund is default Pension Fund Manager.
Subscriber has the option to change his/her preference for allocation and Fund Manager in the future.
Subscriber also have the option to chose different Fund Manager for Tier1 and Tier 2 account respectively.
Benefits of Investing in NPS
#It is one of the low cost Retirement benefit plan.
#Investment is professionally managed by Fund Managers.
#Diversification of Funds aims at mitigating risk and at the same time providing optimal return on Investment.
#Restriction on Withdrawal (Tier -1) ensures that Retirement corpus does not lose out on its objective.
#The account is portable and may be accessed from any location in India.
Nomination can be made at the time of registration and one may add up to 3 nominees. In case of more than 1 nominee, Subscriber will have to declare the percentage of fund allocated to the respective nominees. Nominees may also be changed latter, after the PRAN has been generated.
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.
Withdrawal upto 60% of the Fund is exempted from purview of Income Tax. The amount vested in purchasing an annuity plan is also exempted from tax but the periodic payout or the annuitized returns is taxable. However, Individuals are allowed to withdraw their funds in installments after the age of 60, to reduce the tax implications.
In the Budget 2017, It was announced that contribution of up to 20% of the gross income of a self employed can be deducted from taxable income U/S 80CCD (1) to bring it at par with the benefit enjoyed by the Salaried Class.
Charges and Penalties
Unfreeze/Reactivate Account: If the minimum contribution and balance criteria is not maintained the account is liable to be deactivated/frozen. In order to reactivate/unfreeze, Subscriber needs to submit a request form (UOSS10A) along with minimum of Rs 600. Out of which Rs 100 will be charged as penalty to unfreeze/reactivate and rest will be allocated to your portfolio.
Subscribers are not allowed to withdraw from the Tier-1 scheme before attaining the age of 60 years. However, if a Subscriber opts to retire before the completing 60 years of age or does not want to continue with the scheme then, Subscriber has to utilize at least 80% of the accumulated retirement wealth for purchasing a retirement annuity (providing monthly pension to the subscriber) while the rest of the fund will be paid as lump sum to the subscriber.
Subscribers withdrawing post the age of 60 years, will have to invest at least 40% of the savings to purchase a pension annuity while the rest could be withdrawn as lump sum.
On attaining 70 years of age, Subscriber will no longer be allowed to contribute in the scheme. Subscriber is allowed to remain invested till the age of 70, in case the accumulated amount is less than Rs 2 lacs then one is allowed to withdraw the entire amount to the respective bank account as full and final settlement.
In the unfortunate event of death of the subscriber, the entire accumulated pension wealth (100%) would be paid to the nominee / legal heir of the subscriber and there would not be any purchase of annuity/monthly pension.
Conditions for Partial Withdrawal of Funds: Partial withdrawal from NPS account is allowed subject to fulfillment of following conditions:-
One should have remained actively invested in NPS for 3 years.
Amount of withdrawal should not exceed 25% of your total investments.
Withdrawal can only be allowed against specified reasons.
Withdrawal will be allowed only 3 times during the entire tenure of subscription with a gap of 5 years between two partial withdrawals.
Annuity may be purchased from any one of the following companies licensed by IRDAI (Insurance Regulatory Authority of India) and empanelled by PFRDA to act as Annuity Service Provider.
#Life Insurance Corporation of India
#SBI Life Insurance Co. Ltd.
#ICICI Prudential Life Insurance Co. Ltd.
#Bajaj Allianz Life Insurance Co. Ltd.
#Star Union Dai-ichi Life Insurance Co. Ltd.
#Reliance Life Insurance Co. Ltd.
#HDFC Standard Life Insurance Co. Ltd
List will be upgraded as more and more Companies get empanelled.
Documents Required for Withdrawal: Withdrawal Form duly filled along with following documents;
Grievance may be raised through a telephone call to CRA toll free helpline number (1800222080) or through the CRA portal (www.cra-nsdl.com).