The National Pension System is a pension scheme launched by the government for all citizens of India. So this scheme invests the contributions of the people into shares and debentures where they grow over time. On maturity, the subscriber receives all the money back in the form of pension. However, the amount of pension one receives depends upon how well the investments performed. So, let’s talk about the NPS in detail.
Pension Scheme Eligibility And Regulation
A person should be between the age of eighteen to sixty-five years to open an NPS account. However, the earlier you enroll in this pension scheme, the better. It is because contributing money earlier into this system will make it grow over time.
Moreover, the PFRDA or the Pension Fund Regulatory Authority of India regulates and manages this scheme making it very secure.
Maturity Pension Scheme
An ordinary citizen of India can start receiving a pension through the NPS after the age of sixty years. However, one can even extend it to the age of seventy years.
Furthermore, you can withdraw up to 25% of your contributions after three years of opening your account. But, there must be a definite purpose behind it, such as an illness, education, or purchase of a property.
Joining The NPS
To enroll in the NPS, you have to open your account with a nearby POP. A POP stands for Point of Presence, and most private and public sector banks act as POPs. Moreover, there are collection points which are nothing more than POP service providers. They are also called POP-SPs.
Returns From NPS
You will not receive secure gains in your NPS accounts. It is because the performance of the investment purely decides the profits that you will receive.
Additionally, your NPS account money gets invested in four forms- corporate bonds, equities, government bonds, and alternative assets.
NPS Account Types
There are two types of accounts under this scheme of pension. They are:
- Tier I Account: It is the primary account available with every NPS subscriber. Moreover, it carries various tax deductions. Upon maturity at the age of sixty years, a person can withdraw 40% of the total money without paying tax. However, you have to use another 40% to buy an annuity. Furthermore, you can either buy a pension of the remaining 20% amount or, withdraw it after paying tax.
- Tier II Account: A Tier II Account is a Savings account that you can open if you have a Tier I account. Most subscribers use this account to make additional investments in their pension fund. Additionally, this account has no restrictions on the investment or withdrawal of funds. Also, there are no tax deductions from this account. However, if you fail to pay the initial contribution, the account gets frozen as per the norms of the PFRDA.
Investment Choices In NPS
A person enrolled in the NPS pension scheme has two investment choices:
- Active: This option allows the subscriber to decide how will he invest his money in different assets.
- Lifecycle Fund: It is the default option of investment. Consequently, this option invests money automatically according to the subscriber’s age.