Introduction 

 The National Pension Scheme (NPS), launched by the Central Government, aims to ensure financial security by offering a voluntary contribution-based pension system. It allows individuals to build a retirement corpus, ensuring financial stability during their post-retirement years.This article will give you an overview of the What is National Pension scheme for better understanding.

What is National Pension Scheme?

The National Pension Scheme (NPS) is a social security program aimed at providing employees in various sectors (public, private, and unorganised, excluding armed forces personnel) with a means to secure their future.

Participants are encouraged to make regular contributions to a pension account throughout their employment. Upon retirement, they have the option to withdraw a portion of their savings as a lump sum, with the remainder converted into a monthly pension.

Initially mandated for Central Government employees since January 1, 2004, the NPS has since been extended to all Indian citizens on a voluntary basis.

The scheme holds particular appeal for private sector employees seeking a dependable post-retirement pension plan. Its key advantage lies in portability, enabling individuals to transfer their NPS benefits seamlessly between different jobs and locations. Additionally, participants can benefit from tax incentives under Section 80C and Section 80CCD of the Income Tax Act.

Types of NPS Account:

The National Pension Scheme (NPS) offer two types of accounts

Tier-I Account:

• This is the primary NPS account where contributions are made by the subscriber. It is mandatory to open a Tier-I account to join NPS.

Tier-II Account:

• This is an optional account that provides flexibility in withdrawals and investments.

Who should invest in NPS?

The National Pension Scheme (NPS) appeals to individuals seeking to build a retirement fund and ensure financial security. It is particularly advantageous for:

1. Salaried Individuals: Employees in both public and private sectors benefit from NPS due to its structured approach to retirement savings and tax-saving opportunities.

2. Self-Employed Individuals: Professionals like entrepreneurs and freelancers can utilize NPS to create a retirement corpus while enjoying tax deductions on their contributions.

3. Young Individuals: Starting early with NPS contributions harnesses the power of compounding, allowing young individuals to build a substantial retirement fund over time.

4. Conservative Investors: NPS caters to conservative investors with options such as low-risk government securities, providing stable returns and ensuring financial stability in retirement planning.

Benefits of the National Pension Scheme – 

The National Pension Scheme (NPS) offers several benefits that make it an attractive option for retirement planning. Here are the key benefits of the NPS:

Tax Benefits:

• Contributions made towards NPS qualify for tax deductions under Section 80CCD(1) of the Income Tax Act, up to 10% of gross income (within overall limit of Rs. 1.5 lakh under Section 80CCE).
• An additional deduction of up to Rs. 50,000 is available under Section 80CCD(1B), exclusively for NPS contributions, making it a total deduction of up to Rs. 2 lakh.

Flexible Contributions:

• Subscribers can choose their contribution amount and frequency, allowing flexibility in building their retirement corpus.
• Tier-I account mandates regular contributions, whereas Tier-II account offers flexibility with no such requirement.

Diverse Investment Options:

• NPS offers a choice between Active Choice and Auto Choice options for investment:
• Active Choice: Subscribers can decide the allocation of funds across various asset classes like equity, corporate bonds, and government securities based on their risk appetite and investment goals.
• Auto Choice (Lifecycle Fund): Investments are automatically diversified based on the subscriber’s age, with a higher equity allocation for younger subscribers and a gradual shift towards safer instruments as they near retirement.

Long-term Wealth Creation:

• NPS investments benefit from compounding over the long term, potentially resulting in substantial wealth accumulation by the time of retirement.
• Market-linked returns offer the potential for higher growth compared to traditional savings avenues.

Post-Retirement Income:

• Upon retirement, subscribers must use at least 40% of their accumulated corpus to purchase an annuity, ensuring a regular income stream throughout retirement.
• The remaining 60% can be withdrawn as a lump sum, providing flexibility in managing post-retirement finances.

Portability and Accessibility:

• NPS accounts are portable across jobs and locations within India, ensuring continuity in retirement savings irrespective of career changes.
• Online access and management tools make it convenient for subscribers to monitor and manage their NPS accounts.

Regulated by PFRDA:

• The Pension Fund Regulatory and Development Authority (PFRDA) oversees NPS, ensuring transparency, security, and efficient management of subscriber funds.

Low Cost:

• NPS has competitive fund management charges, ensuring maximum returns on investments.

Eligibility Criteria for NPS – 

Here’s the eligibility criteria for an NPS account.

1. Either a resident or a non-resident Indian
2. In the age bracket of 18 to 65
3. Know Your Customer (KYC) requirements should be met
4. Qualified to execute a legal contract

NPS and Withdrawals – 

1. Withdrawal rules after retirement (60 years) – 

• After reaching the age of 60, individuals enrolled in the National Pension Scheme (NPS) can withdraw up to 60% of their accumulated corpus as a lump sum.
• The remaining 40% is mandated to be used for purchasing an annuity plan, ensuring a steady income stream. However, according to recent NPS guidelines, if the total corpus is Rs. 5 lakh or less, subscribers have the flexibility to withdraw the entire amount without the requirement to buy an annuity. These withdrawals are also exempt from tax.

2. exit rules or Early withdrawal 

• When a subscriber reaches the age of superannuation or 60 years old, they must use at least 40% of their accrued pension total to buy an annuity that offers a regular monthly pension. The balance funds can be withdrawn in totality. 
• If the subscriber exits prematurely (before reaching the age of superannuation or turning 60), at least 80% of their accrued pension total must be utilised to buy an annuity that provides a regular monthly income. If the total is less than or equal to two and a half lakh rupees, the subscriber can opt for 100% withdrawal.
• If the subscriber dies, the entire amount would be paid to the nominee. 

How to login to your National Pension Scheme Account

Visit the Official NPS Website:

• Go to the official NPS website. The URL is https://www.npscra.nsdl.co.in/.

Navigate to the Login Section:

• Look for the ‘Login’ section on the homepage of the website. It is usually located at the top right corner.

Choose your Login Type:

• There are two types of login options available:
  • Subscribers: Select this option if you are a subscriber and have a Permanent Retirement Account Number (PRAN).
  • POP / Corporate: Select this option if you are a Point of Presence (POP) or Corporate entity managing multiple PRANs.

Enter your PRAN:

• If you are a subscriber, enter your PRAN (Permanent Retirement Account Number). PRAN is a unique 12-digit number assigned to each NPS subscriber.

Enter your Password:

• Input your password in the designated field. If you are logging in for the first time or have forgotten your password, follow the ‘Forgot Password’ link to reset it using the OTP (One-Time Password) sent to your registered mobile number.

Enter the Captcha Code:

• Fill in the captcha code displayed on the screen to verify that you are not a robot.

Click on ‘Login’:

• After entering all the required details, click on the ‘Login’ button to access your NPS account.

Access your Account:

• Once logged in, you can view your NPS account details, check your contributions, transaction history, account statements, and manage your profile settings.

Logout Securely:

• After completing your transactions or viewing your account details, remember to log out securely by clicking on the ‘Logout’ button.

Conclusion 

 The National Pension Scheme (NPS) stands as a pivotal initiative by the Central Government to foster financial security through a voluntary pension system. This article has provided a comprehensive overview of the NPS, highlighting its broad appeal and benefits for individuals across various sectors.

FAQ

How much amount of NPS is tax-free?

60% of the total corpus withdrawn in lumpsum is exempt from tax.

How many years NPS will pay pension?

Pension (Annuity) payable for 5, 10, 15 or 20 years certain and thereafter as long as you are alive. 3. Pension (Annuity) for life with return of purchase price on death of the annuitant (Policyholder).

Is NPS risk free?

All investments in the NPS scheme are secured through regulations; hence, the subscribers enjoy better returns, which are also safeguarded.