No matter how much we like to “live in the moment”, it’s true that the future is uncertain. In such a scenario, it’s best to have a plan to keep your future safe.
Wondering what we’re talking about?
We’re talking about the one assurance that will not only help you enjoy the fleeting moments of the present but will also ensure that you have a safe and secure future.
National Pension Scheme
The National Pension Scheme (NPS) was launched by the Indian government on January 1, 2004. The aim of this voluntary contribution-based pension scheme is to empower retired individuals to live off their retirement income. It’s regulated and administered by the PFRDA (Pension Fund Regulatory and Development Authority).
Although initially NPS was launched for new government recruits, from May 1, 2009, its perks were extended to all Indian citizens who wish to opt for this pension scheme. The bigger picture here is to encourage our generation to start saving for our future.
NPS Interest Rates
The interest rate on NPS contribution is dependent on the pension fund manager (PFM) you choose. To manage the fund, the user can choose any of the eight pension fund managers.
|Bank||Name of the scheme|
|HDFC||HDFC Pension Management Company|
|Kotak||Kotak Mahindra Pension Fund|
|UTI||UTI Retirement Solutions Pension Fund|
|Reliance||Reliance Capital Pension Fund|
|LIC||LIC Pension Fund|
|SBI||SBI Pension Fund|
|ICICI||ICICI Prudential Pension Fund|
|DSP||DSP Blackrock Pension Fund|
There are primarily two types of NPS accounts:Note: If you don’t choose a PFM, the SBI Pension Funds Private Limited becomes the default manager.
Tier I NPS Account
Tier I account is basically a permanent retirement account that previously had a long lock-in period – only when the subscriber reached 60 years of age could they withdraw their funds from the account. However, since 2011, the PFRDA has modified the lock-in mandate.
According to the revised mandate, subscribers can now opt for premature withdrawal if they have successfully completed 15 years of service. And post that, you can withdraw up to 50% of your contribution in the account. An important thing to note here is that one can withdraw funds from their Tier I account prematurely in the form of repayable advances.
The minimum contribution in a Tier I account is ₹ 500/month or ₹ 6,000/year.
Tier II NPS Account
Unlike a Tier I account, a Tier II account functions like a savings account, that is, a subscriber is allowed to make unlimited withdrawals as and when they wish. But the important thing to remember here is that you can open a Tier II account only if you hold an active Tier I account. Also, a Tier II account comes with no tax benefits.
The minimum contribution in a Tier II account is ₹ 1,000. For every subsequent transaction you make, you will be charged ₹ 250.
How to Open an NPS Account?
For tech-savvy generation like ours, the government offers two options – via your Aadhaar Card and your PAN Card.
If you opt for an Aadhaar Card registration, you must ensure that:
- Your mobile number is linked to your Aadhaar number.
- Your uploaded signature is in a .jpg or jpeg format (the file size can be anywhere between 4 to 12 kb).
In this process of online registration with Aadhaar, your biodata and your picture are sourced from the Aadhaar database. However, you can change your picture on the form if you wish. Once the registration process is complete, you can login to your e-NPS account and start making contributions to it. You can also access all your NPS details from here upon the completion of the process.
If, on the other hand, you opt for a PAN Card registration, you must ensure that:
- Your savings account is in an NSDL impaneled bank since the bank handles the entire KYC process.
- All the information provided in the NPS online form matches the information already held by your bank. In case the details on your NPS statements don’t match, the bank may deny your registration application.
- Your signature and picture are scanned.
- The first contribution you make is via Net Banking.
The Permanent Retirement Account Number (PRAN)
When you register for an NPS account, you are allotted an individual Permanent Retirement Account Number or PRAN. This number allows you to access both your Tier I and Tier II accounts. Once you are allotted your individual PRAN number, you must send the forms to the e-NPS processing center within 90 days, or else, your PRAN number will be temporarily frozen or suspended. The PRAN remains the same throughout the lifetime of a subscriber.
Are you Eligible for NPS?
You’re eligible for the NPS scheme if you’re either of:
A Central Government Employee
All new recruits under the Central Government (with the exception of the Armed Forces) and Central Autonomous Bodies, who have joined government service on/after January 1, 2004, are eligible for NPS. If you’re any other government employee, you too can subscribe to it under the “All Citizen Model” via a Point of Presence – Service Provider (POP-SP).
A State Government Employee
All employees of State Governments and State Autonomous Bodies, who have joined their government services after the due date of notification provided by the respective State Governments, are eligible for NPS. Similar to the central government employees, other state government employees too can subscribe to it under the “All Citizen Model” via a Point of Presence – Service Provider (POP-SP).
A Corporate Employee
Corporate employees can opt for the NPS scheme by choosing any one of the Pension Fund Managers (PFMs) stated under the “All Citizen Model”. They also must choose the percentage in which the funds are allocated in different classes of assets. Corporations usually have the advantage of choosing an investment option either at the corporate level or at the individual subscriber level for their employees.
Unorganized Sector Workers
If you’re an Indian citizen between the age of 18 to 60 years, employed under the Unorganized Sector, or don’t hold a stable employment position under any of the Central, State government, an autonomous body, or a public sector undertaking of the Central or State government, you are eligible for opening an NPS -Swavalamban account.
However, if you wish to subscribe to the NPS-Swavalamban scheme, you must not be covered under any social security schemes such as the the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, the Jammu and Kashmir Employees’ Provident Fund Act, 1961, to name a few.
Point of Presence (POP)
POPs refer to the first points of interaction of the NPS subscriber with the NPS infrastructure. Point of Presence Service Providers (POP-SPs), on the other hand, are the authorized branches of a POP. They act as collection points and assisting centers for these subscribers. As of now, the PFRDA has authorized 58 institutions (including public sector banks, private banks, private financial institutions and the Department of Posts) to act as Points of Presence (POPs), to help Indian citizens open NPS accounts.
Can NRIs Open NPS Accounts?
Yes, NRIs too can open NPS accounts. Following is the process they need to follow.
- Check and choose the status of his/her bank account, that is, whether or not it is repatriable.
- Provide the details of his/her NRO or NRE account.
- Upload a scanned photo of his/her passport.
- Choose the communication point from e-NPS, that is, whether from his/her foreign address or the permanent address in India.
Upon the completion of the process, you’ll be able to login to your account and check your NPS account balance.
Can you Open an Offline NPS Account?
Yes, an NPS account can also be opened offline. All you need to do is go to a Pension Fund Regulatory and Development Authority PFRDA authorized POP near you and fill out the registration form. Submit the form with all the relevant documents, photos, etc. Usually, POPs charge ₹ 125 for opening an NPS account. The rest of the process is pretty much the same. On successful registration, you will be given your PRAN number and all other relevant information.
NPS IncomeTax Benefits
Investing in NPS accounts is doubly beneficial as you not only are able to save for your future but you can also claim tax benefits under Section 80C of the Income Tax Act. Investing in it means claiming up to ₹ 1,50,00, as deductions, under both Section 80C and 80CCE. Furthermore, now (since Budget 2016) anyone investing in such accounts is eligible for an additional benefit of ₹ 50,000 under Section 80CCD(1b).
Clearly, it has numerous benefits. The process of opening an account is super easy and not at all time-consuming. Saving money for your future couldn’t get any easier! So, what do you say, are you ready to open an NPS account today?