National Pension System

National Pension System (NPS) is a voluntary, defined contribution retirement savings system. This retirement scheme is designed to facilitate a regular income post retirement and is based on the unique Permanent Retirement Account Number (PRAN) which is allotted to every individual that applies for the same. The Indian govt. has created this scheme with security of the individual’s income in mind and offers some wonderful benefits for NPS Account holders.
The NPS has been designed to enable systematic savings during the subscriber’s working life.

Portable and Regulated

NPS provides seamless portability across jobs and across locations, unlike all current pension plans. It would provide hassle-free arrangement for the individual subscribers.

NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust.

Offers of Pension Fund Manager

The subscriber can choose to invest either, wholly or in combination, in four types of investment schemes offered by the pension fund managers. These are:

Scheme E (equity) which allows up to 75% equity participation, this is invested in stocks

Scheme C (corporate debt) which invests only in high-quality corporate bonds up to 100%

Scheme G (government/gilt bonds) which invests only in government bonds up to 100%

Scheme A (alternative investment) which allows up to 5% (newly added asset class only for private sector subscriber with active choice)

Alternatively, the subscriber can opt for the default scheme, whereas per the time left to retirement his portfolio is rebalanced each year for the proportion of equity, corporate bonds, and government bonds.

Permanent Retirement Account Number

Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The system is structured into two tiers:

Tier-I account: This is the non-withdrawal Permanent Retirement Account in which the accumulations are deposited and invested as per the option of the subscriber.

Tier-II account: This is a voluntary withdrawal account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.

NPS Tax Benefit

As per the amendment made by Union Budget 2015 in tax provisions for FY 2015-16, if any customer contributes voluntarily towards the NPS system, then he would get an additional benefit of ₹ 50,000 under section 80CCD (1B) which would be over and above the ceiling limit of ₹ 1,50,000 as prescribed under section 80 CCE.

How to Withdraw

A. Upon attainment of the age of 60 years:

At least 40% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of annuity providing for monthly pension to the subscriber and balance is paid as lump sum payment to the subscriber. However, the subscriber has the option to defer the lump sum withdrawal till the age of 75 years.

In case of attainment of 60 years, exit before the age of Superannuation/attainment of 60 years, the subscribers can also initiate withdrawal requests in the CRA system, which shall subsequently have to be verified by the Nodal Office (POP/Banks) in CRA system.

B. At any time before attaining the age of 60/75 years:

At least 80% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of annuity providing for monthly pension to the subscriber and the balance is paid as a lump sum payment to the subscriber.

C. 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.

RADDS Capital is One Stop Solution for all Individual, Family & Corporate Financial needs. We Pioneer in Insurance Service and Investment Solutions.