If we want to lead a relatively smooth life after retirement, then we need to plan and intelligently select a sound investment option well before the retirement stage of one’s life. Under these circumstances, National Pension System (NPS) works as a dedicated investment plan for retirement and promises a regular pension in the golden years of one’s life.

The National Pension Scheme, or NPS, was created with the purpose of enabling each individual to have a structured and regulated platform to save towards retirement, which comes with several investment options and choices, differing according to the aim of the savings.

Let’s get started. In this blog, we will learn more about NPS, its eligibility, returns, features and benefits, as well as look at how it works, what are the rules on withdrawal, and how you can invest in NPS.

What is the National Pension Scheme

The NPS is a pension programme and a social security initiative initiated by the central government. The scheme is open to most employees from public, private, and unorganized sectors, except the armed forces.

The NPS scheme earlier was only for Central Government employees and it used to mandatorily be covered by those who join on or after 01-01- 2004. The PFRDA has now opened up this scheme to all Indian citizens on a voluntary basis.

Under this pension account, an individual can save during his employment and after retirement, s/he may withdraw a certain amount from the corpus. Subscribers can avail the rest of the amount as a monthly pension only after retirement.

The plan is mandatory for Central Government employees hired on or after January 1, 2004, and is voluntary for all the Pension Fund Regulatory and Development Authority (PFRDA) oversees Indian citizens. Furthermore, income tax benefits are available to subscribers under Section 80C and 80CCD.

NPS Eligibility

Any individual satisfying the following criteria may join NPS:

· Should be a citizen of India either resident or non-resident or Non-Resident Indian (NRI).

· Should be between 18 – 70 years.

· Must abide by the Know Your Customer (KYC) norms as outlined in the application form.

·To enter a contract under the Indian Contract Act, you must be legally competent.

· OCIs, PIOs, and Hindu Undivided Families (HUFs) are not eligible to subscribe to the NPS.  

· NPS stands for individual pension accounts. Thus, it cannot be opened on behalf of a third party. 

Features of NPS

The National Pension System (NPS) is based on a unique Permanent Retirement Account Number (PRAN), which is allotted to every subscriber. To promote savings, the Indian government has made the plan more secure and has provided certain appealing perks to NPS account members. 

Regulated

PFRDA regulates NPS, ensuring transparent investment criteria, frequent performance evaluations, and supervision of fund managers by the NPS Trust, which governs the operations. 

Voluntary

It is a voluntary scheme for all Indian nationals. An individual can deposit any amount into their NPS account at any time. 

Flexibility

NPS offers flexibility to one’s choice of investment options and a change in POP, investment pattern, fund manager, and no. of subscription(s). This way, the individual can maximize returns as per his comfort levels with various asset classes and fund managers.

Economical

NPS is one of the lowest-cost investment products available.

Portability

NPS account or PRAN do not change with the change of employment, city, or state. Hence, it can be administered online from anywhere almost.

Transfer of Superannuation Fund

Transfer Superannuation funds of an NPS account holder without any tax implication after the sanction of authorities

Returns/Interest

The earning potential of NPS is higher than other fixed-income schemes. A part of NPS is allocated to equities, which may not provide desired assured returns. However, its returns are far superior compared to other traditional tax-saving investments such as the PPF.

Risk Evaluation

NPS has a cap of 75% to 50% on equity exposure. For government employees, this cap stands at 50%. In the interest of investors, this reduces the equity portion by 2.5% every year for an investor above the age of 50 years, but the cap at 50% remains unaltered for an investor of the age of 60 years and more. This stabilizes the risk-return relationship for investors, protecting the corpus from the volatile equity market. 

Goals

The objectives of the National Pension Scheme include:

Providing Retirement Income

The main purpose of NPS is to form a retirement corpus for individuals, thereby ensuring a regular stream of income during their postemployment years. This scheme helps fulfill their monetary needs and overcome problems that may arise once they retire.

Encouraging Savings Habits and Long-Term Saving

NPS aims at instilling the habit of savings by providing a much organised and structured method of long-term financial planning. The scheme fosters the culture of saving regularly during the working years of a person. It motivates people to continue investing until their retirement.

The tax advantage provided under the scheme is designed to reward long-term commitment. Thus, it provides an attractive solution for retirement planning.

Financial Inclusion

NPS aims at supporting the objective of financial inclusion by providing a retirement savings platform to all citizens, with equal emphasis on the unorganized sector. It affords an opportunity for all sections of the population across various income groups to be part of a formalized pension system.

Flexibility and Choice

NPS offers flexibility to subscribers in terms of investment choices and fund allocation. It allows equity, fixed deposits, and government funds under one roof that allow a subscriber to choose the type of investment according to the risk appetite and financial goals.

Read More – Salary Slip – Meaning, Format, Components & Formulas

Conclusion

In conclusion, the National Pension Scheme is a powerful and forward-thinking initiative designed to help prepare a citizenry in financial security for their elderly years. Throughout this blog post, we have explored why NPS provides such a unique harmony of flexibility, tax benefits, and market-linked returns that it’s always an attractive alternative if you are looking for a secure road to retirement savings.