Is NPS Suitable for Risk-Averse Investors? Check Here

Saving for old age is one of the important aspects of financial planning wherein one needs to save in their young age to enjoy their desired post-retirement period. In India, the concept of pension was earlier restricted only to the government sector employees as there was no such provision for employees who were working in non - government sectors. Getting pension at the ripe age post-retirement is indeed the best thing as the retired employees can lead a financially stable life.

What is the National Pension System?

The National Pension System (NPS) is one of the government-sponsored pension schemes which was launched way back in 2004 and was specifically meant for government employees only. The Pension Fund Regulatory and Development Authority (PFRDA), the regulatory body for the pension sector in India had launched the National Pension System (NPS) in January 2004. But in May 2009, the scheme was opened to all the other sections of the society (employees of public, private, unorganized sector) for encouraging them to invest in a pension scheme at regular intervals during their tenure of employment voluntarily.

This scheme helps the working people to set aside a set of money for their retirement during their course of employment. After retirement, the subscribers can withdraw a certain percentage of the accumulated corpus and the NPS account holder can receive the remaining money as a monthly pension payout post-retirement.

The scheme is convenient across the jobs and it comes with additional tax benefits under Section 80C and Section 80CCD of Income Tax Act 1961.

The government in a move to encourage people from the unorganized sector to save voluntarily for retirement has launched a co-contributory pension scheme, named as Swavalamban Scheme during the Union Budget 2010 - 2011.

The NPS matures when the account holder turns 60 years and the same can be extended until the age of 70 years.

The subscriber of NPS will be allotted a unique Permanent Retirement Account Number (PRAN) and the number will remain the same for the entire life of the subscriber. The PRAN can be used by the NPS account holder from any part of the country. The PRAN provides access to two personal accounts and they are

Tier I Account

This is a non-withdrawable account which is meant for savings for retirement (up to 60 years). It carries a tax deduction under Section 80C of the Income Tax Act up to Rs 1,50,000 per annum and gets additional tax deduction of up to Rs 50,000 per annum under Section 80CCD (1B). On maturity, 60% of the corpus (tax - free amount) can be withdrawn and the remaining 40% should be compulsorily used to buy an annuity.

Tier II Account

This is a voluntary savings facility. In this case, the subscriber of the account is free to withdraw savings from this account as per their requirements but the only drawback is there will be no tax benefits for this account for employees who are working in private sector and for self-employed. This account can be opened only if the subscriber has a Tier I account.

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