NATIONAL PENSION SCHEME

WHAT IS NATIONAL PENSION SCHEME (NPS)?

National Pension Scheme is a government approved pension scheme for Indian citizens in the 18-60 age group. While central and state government employees have to subscribe to NPS  (it’s compulsory for them), it’s optional for others.

WHY DID GOVERNMENT INTRODUCE NATIONAL PENSION SCHEME FOR GOVERNMENT EMPLOYEES ?

Earlier Government of India used to provide a definite pension to employees after retirement which was based on employee  length of  service and average of emoluments(Basic Pay+ Dearness Pay+ Stagnation Increment + Non-practising Allowance) drawn during ten months immediately preceding the date of retirement. From 1 Jan 2004  Government made it  mandatory for new  government employees (except armed forces) to contribute to National Pension Scheme with matching contribution by government. This is a move from a defined benefit pension to a defined contribution based pension system. Since 1st April, 2008, the pension contributions of Central Government employees covered by the National Pension System (NPS) are being invested by professional Pension Fund Managers in line with investment guidelines of Government applicable to non-Government.

CAN  A NON-GOVERNMENT EMPLOYEE ALSO INVEST IN NATIONAL PENSION SCHEME ?

Yes a Non Government employee, between age of 18 to 60 years, can also invest in National Pension scheme. He can join as as an individual investor or if his company(Corporate house) joins NPS.

For corporate  NPS contribution will be in addition to Employee Provident Fund, or EPF, investments.

WHO REGULATES NATIONAL PENSION SYSTEM?

The National Pension System (NPS) is regulated by the Pension Funds Regulatory Development Authority(PFRDA).

WHAT ARE THE ACCOUNTS AVAILABLE IN NPS?

Tier I : contribute into the  pension account with restrictions on withdrawal.

Tier II: a voluntary saving account from which one is free to withdraw whenever he wishes.

An active Tier I account is a pre requisite for opening of a Tier II.  The government and employers will make no contribution to this account.

HOW TO WITHDRAW FROM NATIONAL PENSION SCHEME?

Tier-I comes with partial withdrawal options, subject to conditions.

For those looking to exit before turning 60, there is an option to withdraw 20% of the accumulated savings but have to buy an annuity with the remaining 80%.

When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA and can withdraw only up to 60 per cent of the corpus.

The nominee can withdraw the full amount only after the death of the subscriber.

WHAT ARE TAX IN WITHDRAWING OR ON MATURITY IN NATIONAL PENSION SCHEME?

The NPS is currently under the EET (exempt, exempt, tax) which means it is tax free on contribution and accumulation but taxable on maturity.

Hence, an NPS subscriber is taxed on withdrawal and also when he obtains annuity.

For more about National Pension Scheme

https://www.bankbazaar.com/saving-schemes/nps.html

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