National Pension Scheme

Also considered as a social security measure and provides pension benefits.

Normally it is considered that a person is having an active working life up to the age of 60 years, whether he/she is employed or not. Those who are employed in Government, Public or Private sectors retire on attaining the age of 60 years. To meet the post-retirement expenses, some sort of regular income is required. To overcome this, the Pension scheme was introduced for Government and Public sector employees. The pension scheme was regulated through the Pension Act. It was also considered as a social security measure. Whereas this facility is not available for Private Sector employees and unorganized sector workers. The unorganized sector workers are also deprived of Pension benefits. To have a uniform Pension scheme for all citizens under both Organised and Un-organised sector Government introduced the National Pension Scheme (NPS).

Noticeable features of NATIONAL PENSION SCHEME

  1. Scheme is available for both Organised and Unorganized sector employees.
  2. All Central/State Government/PSU Employees are covered under the scheme.
  3. It is a voluntary contribution scheme. Contributions to the scheme could be made in monthly installments of as low as Rs 500 pm. Thus, inculcate the savings habit and financial discipline.
  4. Contributions made by an individual accumulates till the age of 60 years. The amount so accumulated is managed by professional funds managers.
  5. The NPS scheme is regulated and administered by PFRDA or Pension Fund Regulatory and Development Authority set up under the PFRDA Act,2013.
  6. Scheme is managed online through their portal eNPS. Accounts can be opened online by providing the required documents. The account can be opened through accredited agencies like Various Banks. Contribution to the scheme can also be made either online or through banks.
  7. Subscribers are issued a unique Permanent Retirement Account Number or PRAN. Contribution to the scheme is done through PRAN.

Working of the Scheme

  1. Each PRAN has two accounts namely Tier-I and Tier-II.
    • Tier-I: It is also called Pension account. The minimum contribution to the account is Rs 500. The withdrawal is allowed only on attaining the age of 60 years or exit from the scheme.
    • Tier-II: It is also known as a Voluntary account. The minimum contribution is Rs 250. The contribution and withdrawal in this account are unrestricted. The account allows the subscriber to park his surplus funds in the account and reap the benefit of market-linked higher returns.
  2. Subscriber has the choice of choosing two options for his investments.
    • Auto Choice: Under this option funds managers choose the investment option basing on the age profile of the subscriber.
    • Active Choice: Under the option subscriber is free to choose the allocation percentage of assets like Equities, Debts, and Bonds. However, a maximum of 50% only can be invested in Equities.
  3. Scheme allows the subscriber to partially withdraw 25% of the fund from their contributions. To avail of this facility, there must be contributions for a minimum of 10 years. And there should be a gap of a minimum of 5 years between two withdrawals.

NATIONAL PENSION SCHEME BENEFITS

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Opportunity for savings

Scheme provides an opportunity for savings the amount for meeting post-retirement expenses and lead a peaceful retired life.

Covers unorganized sector

Scheme covers the persons from the unorganized sector also. Self-employed, businessmen and small-time workers can also open the account under NPS.

Very Affordable

Contribution to the scheme is only Rs 500, which is easy to afford.

Allows partial withdrawal of up to 25%

In case of unforeseen expenditure, the scheme allows partial withdrawal of up to 25% after 10 years.

60% of corpus can be withdrawn by age of 60

On attaining 60 years of age, 60% of the corpus can be withdrawn in lumpsum.

Market-driven return on investment

Return on investment is market-driven, and its duration is very long, hence the possibility of accumulation of huge corpus.

Attractive Income Tax benefits

Attractive Income Tax benefits are allowed.

Shortcomings of the Scheme

  1. Return on investments is market-driven. It is difficult to anticipate the amount of corpus to be available on attaining the age of 60 years.
  2. Duration of the scheme is very long. A subscriber is expected to wait till attaining the age of 60 years.
  3. It is difficult to continuously monitor the performance of the fund managers.

NPS models in operations

Government Sector

This model is applicable for government employees both Central and State except Armed Forces. Contribution from employees goes to the NPS and Government also contribute the matching amount i.e. 14% by Central Govt. And 10% by State Govt.
Details

Corporate Sector

Corporate sector organizations can also open the accounts of their employees in NPS. Contribution from employees go to NPS and corporate employers also contribute matching amount. The following organizations are eligible under this model:
1. Registered under Companies Act
2. Central or Public Sector Enterprises
3. State government enterprises
3. Registered LLPs
4. Registered Trust and societies
5. Registered under the Coop Act.
Details

All Citizen Model

All citizens of India can voluntarily opt for contribution to the NPS to avail the retirement benefits, subject to fulfilling eligibility criteria.
Details

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