What is NPS?
NPS stands for New Pension Scheme. It is a pension scheme introduced by Govt. of India where, You can regularly invest in this scheme and Get a part in lump-sum at your retirement and it gives fixed monthly income for the lifetime. Common mans gateway to getting pension benefits post retirement.
How does it work? The NPS is based on a unique individual Permanent Retirement Account Number (PRAN) created for individual subscribers. The PRAN Number will remain the same for your lifetime irrespective of where you operate your NPS A/c from across the nation.
This system will initially be based on two types of sub accounts created for individual investors:
Tier 1: non with draw able & tax deferred pension account ( for all individuals) and Tier 2: with draw able savings account with no tax advantages (for all individuals subject to minimum deposits per year in Tier-1 A/c).
In this system,
- A member will have complete control on how his / her contributions / savings are being managed by selecting a professional pension fund manager (PFM) from a pool of PFMs
- A subscriber shall periodically contribute savings into his/her Permanent Retirement Account (PRA) while he/she is working and Use the accumulations at retirement to procure a pension for the rest of his/her life.
What are the exclusive NPS Benefits?
- Post effective mode of planning for ones retirement, the cost structure is far more efficient when compared with charges levied by mutual funds or other investment options.
- Investment in NPS is highly safe and it contains very less amount of risk – these schemes were launched in May09 and have yielded about 12% annualized return.
- New Pension Scheme provides high returns compare to other relative investment options.
- It provides tax benefits under section 80C of income tax.
- Government provided pension plan directly regulated by PFRDA - Safety wise
- Great End to End Retirement Planning Tool as it will offer investment benefit during the work life and annuity benefit post retirement
- Option to seamlessly switch across savings b/w investment schemes
- Portable Plan
- Nationwide access to NPS over a period of time
- A Must in every individuals portfolio
If the vesting age is less than 60 years, then 20% of the amount accumulated can be withdrawn and the balance 80% will have to be used to purchase annuity.
If the vesting age is 60 years or more but less than 70 years, then 60% of the amount can be withdrawn either as lump sum or in a phased manner between age 60 & 70. Balance 40% will have to be used to purchase annuity.
In case of death due to any cause, the nominee will have the option to withdraw the proceeds in lump sum.
- Tier I:
i. Minimum contribution: Rs.6000 in a year ii. Minimum contribution: Rs.500 per contribution
- Tier II:
- Minimum contribution of Rs.1000 at the time of account opening - Minimum balance of Rs.2000 at the end of a financial year
New Account Opening Charges (Both Tier I & Tier II): Rs.100 Subsequent Contribution / Modification: 0.25% of the amount subscribed by the subscriber, subject to minimum of Rs.20/-
- Two copies of identity proof
- Two copies of address proof
- Signature / Thumb impression (Male: Left, Female: Right)
- Date of Birth Proof
- Self Declaration that he / she is not a pre existing member of NPS
- Colored Passport size photograph
For Tier II Account, along with above documents, bank details & cancelled cheque is mandatory. NRI should have account with bank based in India to open account under NPS.
After the account is opened, the Central Record Keeping Agency (CRA) shall mail a welcome kit containing subscribers Permanent Retirement Account Number (PRAN) card and the complete information provided by the subscriber in the Subscriber Registration Form.