National pension scheme one of the schemes introduced by the government for Indian citizens. It was introduced in 2004 by PFRDA (Pension Fund Regulatory and Development Authority). Though it is economical, it is not well known or popular. It helps us to save money when we are working and get lumpsum money when retired. Any person who is aged between 18 to 60 can join this economical scheme. Initially, it aimed at providing this scheme for government employees only, now it is open to every citizen of India.
TYPES OF NPS:
We have two types of NPS available for citizens to choose for, based on their interest and requirement.
TIER-I : In this type you have a limitation on the amount that can be withdrawn. You are allowed to withdraw only 20% of the amount if you are below 60 years and use the rest to buy annuity plans. If you have attained 60 years you can withdraw 60% and use the rest to buy the annuity plans.
TIER-II : In this type of scheme you do not have any limitations on the amount that can be withdrawn.
ANNUITY SERVICE PROVIDERS:
Annuity service provider is insurance company which is registered with IRDA for providing Annuity services to NPS subscribers when they exit from the NPS scheme. Annuity implies the monthly payment i.e. pension made to the subscribers after exiting from the NPS scheme.
We have seven ASPs are providing the Annuity services to Subscribers of NPS. The ASPs are as follows:
- Life Insurance Corporation of India
- SBI Life Insurance Co. Ltd.
- ICICI Prudential Life Insurance Co. Ltd.
- HDFC Standard Life Insurance Co Ltd.
- Bajaj Allianz Life Insurance Co. Ltd.
- Reliance Life Insurance Co. Ltd.
- Star Union Dai-ichi Life Insurance Co. Ltd.
AMOUNT NEEDED TO BE PAID:
TIER-I: In this type a government employee pays 10% of his basic salary. For non government employees need to pay 6000 with a choice of 500 per instalment.
TIER-II: At the time of opening account you need to pay 1000 rupees and 250 rupees per month. You should even maintain 2000 rupees as minimum balance by the end of financial year.
The investment in various classes varies depending on the age of the investment:
- If you invest the amount for about 30 years, then the sum will be invested in the proportion of 50% in equity and the rest in debt instruments.
- If you invest the amount for about 40 years, then the sum will be invested in the proportion of 40% in equity and the rest in debt instruments.
- If you invest the amount for about 45 years, then the sum will be invested in the proportion of 30% in equity and the rest in debt instruments.
- If you invest the amount for about 50 years, then the sum will be invested in the proportion of 20% in equity and the rest in debt instruments.
- If you invest the amount for about 55 years, then the sum will be invested in the proportion of 10% in equity and the rest in debt instruments.
You get a tax benefit if you contribute 10% of your basic and dearness allowance to NPS, under section 80CCE and the limit applicable is up to 1 lakh. You enjoy tax benefits with a limitation i.e. tax can be levied at the time of withdrawal from the account.
The intermediator fees for non government fund is 0.25 per cent and for government fund the fee is 0.0102 per cent. POPs are allowed to charge 100 rupees with additional 0.25 per cent of the investment amount.
HOW TO JOIN NPS ?
The basic criteria that should be full filled is that the person should be citizen of India and should be between 18 to 16 year old. You can contact POP with which you want to be associated and get a PRAN application and submit it with necessary documents and details. You can also open account online by using e-NPS services.
HOW TO WITHDRAW ?
In order to withdraw amount you need to submit an application regarding withdrawal to POP with the necessary information and documents. Then it is POP responsibility to authorize those documents and send those documents to Central Record Keeping Agency (CRA) and NSDL. CRA would register and forward you the application form along with details of documents that need to be submitted. Once the process is completed you can withdraw from you account.
The documents that are to be produced while applying for withdrawal are:
- Proof of identity
- Proof of address
- PRAN card
- Cancelled Cheque
In case if the subscriber dies before 60 years then the amount can be claimed
by the nominee or the legal heir.
- Tax benefits
- Helps regulate investments
- Diversification of funds
- Exposure to equity is limited
- There is restriction on the withdrawal
- Low returns