September 30, 2024
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Details of National Pension Scheme

Bhuvaneswari09 mins
National Pension Scheme

NPS

Introduction of NPS:

National Pension Scheme (NPS), has been introduced by Central Government in India. It was effect from January 1 2004. National Pension Scheme Head quarter placed in New Delhi. NPS is a voluntary, long-term investment scheme designed to provide retirement benefits to citizens. Its primary objective is to offer a sustainable pension system that encourages systematic savings during the working years, ensuring a steady income stream during the golden years of life.

National Pension Scheme

Eligibility of NPS:

                 Any individual citizen of India in the age group of 18 – 70 years can join NPS. Whether as individuals or part of an employee-employer group.

Registration of National Pension Scheme (NPS):

                       There are two types of National Pension Scheme registration. One is online and another one is offline.
Online registration is very easy way. We go to eNPS website. online registration need Mobile number, Aadhar number, Pan card.
                  Offline registration involves visiting the bank, post office and point of presence. This registration need KYC document. KYC document involves providing identification and address proof documents. If you have deposit first initial payment you will receive Permanent Retirement account number (PRA), password and welcome kit. The drawback of offline is that you have to pay certain payments.
                Once you have the Permanent Retirement Account (PRA) and password, you can check your pension details through the pension links.

Benefits of NPS:

                    Flexibility: Under the National Pension Scheme (NPS), investors have the liberty to select their preferred fund manager from a pool of seven different options. Additionally, they can opt for either Active or Auto mode, giving them control over how their investments are managed.

                    Tax benefits: Under the National Pension Scheme (NPS), individuals can avail tax benefits of up to Rs. 2 lakhs. These tax benefits fall under three provisions: 80CCD(1), 80CCD(1B), and 80CCD(2). Upon retirement, participants are entitled to withdraw a tax-free lump sum amounting to 60% of the total corpus.

Different types of National pension scheme (NPS):

  • Tier I
  • Tier II

Tier I:

Opening a Tier 1 account is mandatory for individuals who wish to join the NPS. It serves as the core retirement savings account.

Withdraw process of Tier I:

  • The Tier 1 account savings can only be withdrawn after the age of 70, but not in full. Remaining 40% of amount in pension. 60% of the withdraw amount is tax free.
  • Withdraw process documents require a Photograph, PAN card, Cancelled cheque/bank statement/passbook copy and other KYC documents for proof of identity and proof of address.
  • In certain situations, Tier 1 accounts provide exceptions. For instance, for purposes such as higher education, home purchase, and medical expenses, individuals can withdraw 25% of the pension amount. In such cases, there is no requirement to be above 70 years of age to make the withdrawal. However, this withdrawal is subject to a gap of five years between consecutive withdrawals. These exceptions are applicable for investing a minimum of 3 years in a National Pension Scheme.

Tier I contribution of National pension Scheme (NPS):

  • The minimum amount required to open an NPS Tier 1 account is ₹500. The minimum contribution in a year must be ₹1000. The maximum contribution does not include anything.

Tier II:

  • The NPS Tier II account is a voluntary and flexible option that allows individuals to contribute and withdraw funds without any constraints or limitations. Tax benefits are not available to Tier II accounts. Tier II users must have an NPS Tier 1 account.

Withdraw process Tier II:

  • The Tier II account allows for the withdrawal of pension funds at any time. Withdraw process documents require a copy of your PRAN (Permanent Retirement Account Number) card, bank account details, and a cancelled cheque is standard. However, if essential details like your name, photo, address, and signature aren’t available in the Central Recordkeeping Agency (CRA) system, additional Know Your Customer (KYC) documents may be necessary to verify your identity and address.

Tier II contribution of National pension Scheme (NPS):

  • No limit on minimum and maximum contribution. However, the minimum contribution amount is Rs 250.

Fund managers:

  • Aditya Birla Sun Life Pension Management.
  • Axis Pension Fund Management.
  • HDFC Pension Management.
  • ICICI Prudential Pension Fund Management.
  • Kotak Mahindra Pension Fund.
  • LIC Pension Fund.
  • Max Life Pension Fund Management.
  • SBI Pension Funds.

Currently there are 10 fund managers are manage the pension investments.

National Pension Scheme investment options:

  • Active  choice
  • Auto choice

Asset classes:

             Four Asset classes are available.
  •  E – Equity
  • C – Corporate Bond
  • G – Government Securities
  • A – Alternative Investment Funds
        NPS subscribers are invested in these four assets. These four assets are applicable for both auto and active choice.

Auto choice:

          The NPS Auto Choice option caters to passive investors who prefer to delegate the allocation of their funds across various asset classes to an automatic system. The auto choice investments are made in three life cycle funds,
  • Aggressive Life Cycle Fund – maximum equity allocation up to 75%
  • Moderate Life Cycle Fund – maximum equity allocation 50%
  • Conservative Life Cycle Fund – maximum equity allocation 25%

Active choice:

                    NPS subscribers who prefer to personally determine the mix of assets in their portfolio can take advantage of this option.

Limitation of asset class for active choice:

  •  E – Equity – maximum 75%
  • C – Corporate Bond – maximum 100%
  • G – Government Securities – maximum 50%
  • A – Alternative Investment Funds – maximum 5%

National Pension Scheme

Switched NPS investment options:

                you have the freedom to switch your fund manager annually and adjust your investment scheme up to four times a year, providing you with flexibility and control over your investment strategy. The shifts are applicable for both tier I and II.
For More Details about NPS
What is PPF?

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