National Pension System : A Complete Guide for Retirement Plan
Introduction
The country wide pension system National Pension System is an Indian federal govt-backed pension cum funding arrangement aimed at keeping the residents of India as they attain their old age.
it is a authentic retirement alimony plan, in which you can get a stable salary with tax merits afterwards your retirement, and with a bit non-compulsory chance you can actually increase the returns to a fine admeasurement.
What is NPS National Pension System?
The Government of India has introduced the National Pension System -NPS
(also called as New Pension Scheme) with effect from January 2004.
Earlier, the NPS covered only the Central Government employees but NPS was made available to All Citizens of India (age group of 18-65) from May 2009.
NPS brings an attractive long term saving avenue to effectively plan your retirement through secure and regulated market based return.
PFRDA (Pension Fund Regulatory and Development Authority), the regulatory body for National Pension System, has appointed NSDL as Central Recordkeeping Agency (CRA) for NPS.
Central Recordkeeping Agency is the first of its kind venture which will carry out the functions of Maintaining Records, Administration and Customer Service for all subscribers.
CRA shall issue a Permanent Retirement Account Number – PRAN to each subscriber & maintain data base of each PRAN account along with recording transactions relating to each PRAN.
Tax Benefits of NPS: Enjoy 1.5L + 50K Extra Benefit | New & Old Regime
How it works?
An National Pension Subscriber is required to select the PFM-Pension Fund Manager as well as plan preference while registering in Central Record Keeping Agency (CRA) system under NPS.
The Subscriber has been provided with several options to select from.
In NPS, there are multiple PFMs, two Investment options – Auto or Active and 4 Asset Classes -Equity, Corporate debt, Government Bonds and Alternative Investment Funds.
The Subscriber first selects the Pension Fund Manager then the Subscriber has an option to select any one of the Investment Options.
Pension Fund Manager (PFM)
The Subscriber is mandatorily required to choose one PFM from the available PFMs.
- Birla Sunlife Pension Management Limited
- HDFC Pension Management Company Limited
- ICICI Prudential Pension Funds Management Company Limited
- Kotak Mahindra Pension Fund Limited
- LIC Pension Fund Limited
- Reliance Capital Pension Fund Limited
- SBI Pension Funds Private Limited
- UTI Retirement Solutions Limited
NPS benefits: 12 Reasons For Investing In NPS
Types of NPS Account?
The two types of NPS accounts offered by Permanent Retirement Account Number (PRAN) are as follows:
Tier-I Account
A National Pension Scheme Tier I account is the basic retirement account which is mandatory if you want to avail NPS benefits. Once you open an Tier I account, you are allotted a PRAN which acts like a unique identification number for your National Pension Scheme account.
Before attaining 60 years of age, only 25% of the contribution can be withdrawn while the rest 75% has to be automatically used for buying the annuity from a life insurer. An annuity is a series of installments made at fixed timespans.
Annuity plans require the insurer to pay the insured income at regular intervals until his death or till maturity of the plan.
After attaining the age of retirement, close to 60% contribution can be withdrawn and the rest 40% again has to be used to purchase the annuity from approved life insurers.
Tier-II Account
It is a voluntary retirement along with saving type of account. You will only be able to open a NPS Tier-II account if you already have a NPS Tier I account. Whenever you wish, you will be free to withdraw your money from Tier-II account.
National Pension System Investment
The Subscriber is required to decide his/her investment choice whether Active Choice or Auto Choice.
Also Read NPS Rate of Interest : Best Fund Manager for NPS 2021
Option 1 – Active Choice: Individual Funds
In this type of investment choice,
Subscriber has the right to actively decide as to how his / her contribution is to be invested, based on personal preference. The Subscriber has to provide the PFM, Asset Class as well as percentage allocation to be done in each scheme of the PFM.
There are four Asset Classes –
Equity,
Corporate debt,
Government Bonds and
Alternative Investment Funds from which the allocation is to be specified under single PFM.
- E Asset class – Equity and related instruments.
- C Asset class – Corporate debt and related instruments.
- G Asset class – Government Bonds and related instruments.
- A Asset Class– Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts etc.
| E class | C class | G class | A class | |
|---|---|---|---|---|
| Investment Risk | High | Medium | Low | Low |
| Investment Return based on market | High | Medium | Low | Low |
Subscriber can select multiple Asset Class under a single PFM as mentioned below:
- Upto 50 years of age, the maximum permitted Equity Investment is 75% of the total asset allocation.
- From 51 years and above, maximum permitted Equity Investment will be as per the equity allocation matrix provided below. The tapering off of equity allocation will be carried out as per the matrix on date of birth of Subscriber.
- Percentage contribution value cannot exceed 5% for Alternative Investment Funds.
- The total allocation across E, C, G and A asset classes must be equal to 100%.
Equity Allocation Matrix for Active Choice
| Age (years) | Max. Equity Allocation |
|---|---|
| Upto 50 | 75% |
| 51 | 72.50% |
| 52 | 70% |
| 53 | 67.50% |
| 54 | 65% |
| 55 | 62.50% |
| 56 | 60% |
| 57 | 57.50% |
| 58 | 55% |
| 59 | 52.50% |
| 60 & above | 50% |
Option 2 – Auto Choice: Lifecycle Fund
NPS offers an easy option for those Subscribers who do not have the required knowledge to manage their NPS investments. In this option, the investments will be made in a life-cycle fund. Here, the proportion of funds invested across three asset classes will be determined by a pre-defined portfolio (which would change as per age of Subscriber).
A Subscriber who wants to automatically reduce exposure to more risky investment options as he / she gets older, Auto Choice is the best option.
As age increases, the individual’s exposure to Equity and Corporate Debt tends to decrease. Depending upon the risk appetite of Subscriber, there are three different options available within ‘Auto Choice’ – Aggressive, Moderate and Conservative.
| Options | Deception | Risk | Return |
|---|---|---|---|
| Aggressive | This Life cycle fund provides a cap of 75% of the total assets for Equity investment. The exposure in Equity Investments starts with 75% till 35 years of age and gradually reduces as per the age of the Subscriber. | High | High |
| Moderate | This Life cycle fund provides a cap of 50% of the total assets for Equity investment. The exposure in Equity Investments starts with 50% till 35 years of age and gradually reduces as per the age of the Subscriber. | Medium | Medium |
| Conservative | This Life cycle fund provides a cap of 25% of the total assets for Equity investment. The exposure in Equity Investments starts with 25% till 35 years of age and gradually reduces as per the age of the Subscriber. | Low | Low |
Source –NPS
Also Read NPS vs PPF : NPS vs APY – Select the Best Retirement Plan
Features of National Pension System
| Status Tier-I Account Default Tier-II Account Voluntary |
| Withdrawals Tier-I Account Not permitted* Partial withdrawal with some specific cases ( higher education, marriage etc.) Tier-II Account Permitted |
| Eligibility Tier-I Account Any Indian citizen between 18 & 65 years of age Tier-II Account Members of Tier I only |
| Lock-in Tier-I Account Till the age of 60 years* Tier-II Account NA |
| Tax benefits on contribution Tier-I Account Investment made under this section can be claimed as a deduction up to Rs.1.5L (under Sec 80C of the IT Act, 1961). Furthermore, you can contribute and claim up to Rs.50000 as deduction under Section 80CCD (1B) of the IT Act, 1961. Tier-II Account NPS Tier 2 is eligible for tax deduction under Section 80C only for government employees. |
| Taxation on withdrawal Tier-I Account Out of 60% of the accumulated corpus withdrawn by the subscriber at the time of retirement, 40% is tax exempt & balance 20% is taxable. Tier-II Account The entire corpus can be withdrawn, which is added to income & taxed as per the tax slab. |
| Minimum amount per contribution Tier-I Account Rs. 500/- Tier-II Account Rs. 250/- |
| Minimum contribution per Financial Year Tier-I Account Rs. 1000/- Tier-II Account NA |
| Minimum number of contributions in a Financial Year Tier-I Account at least One Tier-II Account NA |
| Minimum investment required for opening the account Tier-I Account Rs. 500/- Tier-II Account Rs. 1000/- |
| Investment Management Fee Same for both Fund management Fee is 0.01 per cent. It means, for every Rs 10 lakh, the fee is Rs 100, which is paid to the fund's manager. |
| Asset options Same for both Asset class E – Equity and related instruments. Asset class C – Corporate debt and related instruments. Asset class G – Government Bonds and related instruments. Asset Class A – Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts etc. |
| NRI Tier-I Account Yes, an NRI can join NPS. but the NPS account will be closed if there is a change in the citizenship status of the NRI. Tier-II Account No |
Also Read NPS Contribution: Online and Offline | Contribution by employer 2020-21
Top performing National Pension System
Tier-I
Minimum Contribution per Year – 6000/-
| Pension Fund Manager (PFM) | approx. 5 Year returns | Started Date |
|---|---|---|
| LIC Pension Fund | 11.10% | Jul 2013 |
| SBI pension fund | 10.17% | May 2009 |
| HDFC pension management company limited | 10.28% | Aug 2013 |
| Kotak Pension Fund | 10.20 | May 2009 |
Also Read National Pension Scheme with SBI : A Complete Guide
Tier-II
Minimum Contribution per Year – 2000/-
| Pension Fund Manager (PFM) | approx. 5 Year returns | Started Date |
|---|---|---|
| LIC Pension Fund | 11.27% | Jul 2013 |
| SBI pension fund | 10.03% | May 2009 |
| HDFC pension management company limited | 10.06% | Aug 2013 |
| ICICI Prudential Pension Fund | 10.00% | Feb 2010 |
National Pension System Withdrawal Rules
Upon Superannuation – When a subscriber reaches the age of Superannuation/attaining 60 years of age, the subscriber will have to use at least 40% of accumulated pension corpus to buy an annuity that would furnish a regular monthly pension.
subscriber can withdrawn remaining amount as lump sum.
If the total accumulated pension corpus is less than/equal to Rs. Two lakh, Subscriber can opt for 100% lumpsum withdrawal.
Pre-mature Exit – In case of pre-mature exit from NPS, at least 80% of the accumulated pension corpus of the Subscriber has to be utilized for purchase of an annuity that would provide a regular monthly pension and remaining funds can be withdrawn as lump sum.
Subscriber can exit from NPS only after completion of ten years.
If the total corpus is less than/equal to Rs. One lakh, Subscriber can opt for 100% lumpsum withdrawal.
Upon Death of Subscriber – The entire accumulated pension corpus (100%) would be paid to the nominee of the subscriber.
National Pension System Calculation
The formula that the National Pension Scheme uses is:
A = P (1 + r/n) ^ nt
| A | Total Amount |
| P | Principal sum |
| r | Rate of interest per annum |
| n | Number of times interest compounds |
| t | Total tenure |
If you are 30 years old & your monthly contribution is Rs 1000, you will need to add to the pension account for 30 more years.
Assuming that the rate of interest is approx. 10% every year, the following are the details the NPS offers.
Principal amount – Rs. 360,000
Interest earned [calculated on monthly compounding basis]
Rs. 1,919,325.58
Pension wealth generated: Rs. 2,279,325.58
Lumpsum amount for withdrawn: Rs. 1,367,595.35
Pension per month after retirement: Rs.6,016.97
NPS Apps
NPS apps can be downloaded from the App or play store on the mobile phone then installed.
The subscriber must key in the PRAN and PIN received with the PRAN welcome kit.
After the successful login, the total NPS holding value as on date is displayed. It also shows Tier I and Tier II account holdings of the subscriber. The subscriber can view profile details such as registered mobile number, address, email id etc. These details can be changed using the apps.
NPS Contribution: Online and Offline | Contribution by employer 2020-21
National Pension System Contact Details
Head Office
| Address | NSDL e-Governance Infrastructure Limited 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013 |
| Tel | (022) 2499 3499 |
| Email ID | grc@pfrda.org.in |
| Fax | (022) 2495 2594/ 2499 4974 |
Escalation Matrix for Central Grievance Management System (CGMS) – Only for NPS (National Pension system) related queries/complaints
| Escalation Level | Level I |
| Name of the Official | Mr. Chandrashekhar Warange |
| Contact details | Tel No. – 022 24993499 Email ID – gro@nsdl.co.in |
| Role | Grievance Redressal Officer (GRO) |
| Escalation Level | Level II |
| Name of the Official | Mr. Mandar Karlekar |
| Contact details | Fax No. – 022 24952594 Email ID – cgro@nsdl.co.in |
| Role | Chief Grievance Redressal Officer (CGRO) |
Escalation Matrix for Exits related to NPS (National Pension System) only
| Escalation Level | Level I |
| Name of the Official | Ms. Manjiri S. Salvi |
| Contact details | Tel No. 022 24994274 Email ID – npsclaimassist@nsdl.co.in |
| Escalation Level | Level II |
| Name of the Official | Mr. Dinesh Dalvi |
| Contact details | Fax No. – 022 24952594 Email ID – dinesh.dalvi@nsdl.co.in |
| Escalation Level | Level III |
| Name of the Official | Mr. Mandar Karlekar |
| Name of the Official | Fax No. – 022 24994974 Email ID – mandark@nsdl.co.in |
Source -NPS
Frequently Asked Questions
- Can a subscriber get loan under NPS?
A subscriber can’t avail a loan against his / her NPS holdings.. - If a subscriber have invested in any other Provident Fund, can I still invest in NPS?
Investment in NPS is independent of subscriber’s contribution to any Provident Fund, therefore Yes. - Can a subscriber having investment in pension funds of non-government / private entities invest in NPS?
Investment in NPS is independent of subscriber’s contribution to any Provident Fund, therefore Yes. - Which document can a Subscriber use as investment proof in order to avail the tax benefit?
The print out of the Transaction detail could be used as a document for claiming tax benefit. - How can a subscriber check the status of his/her PRAN application?
The subscriber can check the status by accessing CRA website by using the 17 digit receipt number provided by POP-SP. - Can a Subscriber reset the I-PIN (Internet Password) online?
The Subscriber has an choose to reset his/her I-PIN online .The request needs to be initiated online in CRA portal by clicking on the “Forgot Password” link then selecting the “Instant Reset I-PIN”.
Additional Question
- Can a Subscriber claim for 100% Withdrawal in case of Superannuation and Pre-mature Exit?
if the total accumulated corpus is less than Rs. 1L then 100% claim is possible in case of Pre-mature Exit.
In case of Superannuation, a Subscriber can claim 100% Withdrawal if the total accumulated corpus is less than Rs. 2L at the time of attaining age of 60 years. - What is Annuity?
An annuity is a financial instrument which provides for a regular payment of a certain amount of money based on annual, quarterly and monthly for the chosen period for a given purchase price or pension wealth. In simple terms it is a financial instrument which offers annual, quarterly and monthly pension at a specified rate for the chosen period. - What are the details of the Subscriber a Nodal office can update?
Modification in subscriber details such as personal details, nomination details, employment details, etc.
Reissue / authorize reset of I-PIN and T-PIN request and Reprint of PRAN Card, Re-issue of PRAN Card.
Incorrect/non updation of subscribers details.
Submission of request for withdrawal.
Contribution not uploaded.
Queries relating to service term such as amount of deduction, payment, retirement etc.
Source-NPS
Bottom line
The NPS is a great asset for the retired employees as the government wants to create a pensioned society. NPS helps them to enjoy certain perks after their retirement. The Central Recordkeeping Agency is responsible for managing the NPS database of every pensioned individual in the country. The pension is collected from the month wise salaries of individuals while they still work and then the funds are delivered are pension to them after their retirement. The new pension system has also included other benefits such as health schemes also in this new system. The NPS has a lot of benefits for the people and if the person is careful of the requirements and criterion of this whole system then he/she can highly benefit from it.
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