National Pension Scheme: The National Pension System or NPS is a voluntary contribution pensions system launched in the year 2004 by Pension Fund Regulatory and Development Authority (PFRDA). NPS is administered and regulated by PFRDA. It is the Government approved pension scheme and citizens of India in the age group of 18-60 are allowed to contribute to this scheme. This scheme was initially designed in the year 2004 for the newly joined Government employees to stop the existing defined benefits pension scheme, however, it has been allowed for all citizens in the year 2009. Anybody can join NPS either as an individual or an employee, however, the contributions to the pension scheme can be made till the age of 60. Even NRIs can open the NPS account and make contributions subject to RBI and FEMA regulations.
Government will not make any contributions to the National Pension Scheme accounts opened by the individuals or employees. However, Government makes contributions to the subscribers opting for Swavalamban scheme subject to certain conditions. Actually there is National Pension Scheme Calculator will be available who are confuse the count the PF.
Where to pen the NPS Account:
NPS is distributed through authorized entities known as Points of Presence (POP)and almost all the banks are enrolled as POPs other than several other financial institutions. To start contribute to NPS, an NPS account need to be opened through any of the POPs. A POP acts as a collection point and provide customer services including requests for withdrawal from National Pension Scheme for the subscribers of pension scheme. Once the account is opened, the subscriber will be given a Permanent Retirement Account Number (PRAN) card consisting of 12 digit unique number. At the same time, subscribers cannot more than one NPS account. Under NPS account, 2 sub-accounts called Tier-1 and Tier-2 are provided to the subscriber. Tier-1 account is compulsory for the subscriber to operate, however, opening and operating Tier -2 account is optional.
Contributions made to Tier-1 retirement account cannot be withdrawn. Funds can be withdrawn only upon meeting the existing conditions prescribed under NPS. Tier-2 account functions like savings bank account and amounts can be withdrawn at any point of time. If anybody confuse how to calculate the PF. Here the National Pension Scheme NPS Calculator will be available.
How the National Pension Scheme NPS works
The minimum yearly contribution to the NPS scheme is Rs.6000/- which can be paid in one go or through installments with a minimum amount of Rs.500/- The funds contributed by the subscribers are invested in turn by the Pension Fund Managers who are registered with PFRDA. Currently, there are 8 pension fund managers registered with PFRDA who are as follows:
- ICICI Prudential Pension Fund
- Kotak Mahindra Pension Fund
- LIC Pension Fund
- SBI Pension Fund
- DSP Blackrock Pension Fund
- Reliance Capital Pension Fund
- UTI Retirement Solutions Pension Fund LIC Pension Fund
- HDFC Pension Management Company
The subscriber can opt for any one of the above fund managers. The individual has 2 options to chose any of the asset classes for investments. Under Active Choice, the subscriber can decide on asset classes in which the contributions made are invested by the fund managers. Under Auto Choice, investment of funds are done automatically based on the age profile of the subscriber.
The subscriber can choose to invest either wholly or in combination, in 4 types of investment schemes offered by pension fund managers, which are as under:
- Scheme E: This scheme allows to invest 75% of the contribution in equity stocks.
- Scheme C: This scheme allows to invest only in high quality corporate bonds
- Scheme G: This scheme allows the subscriber to invest only in Government bonds
- Scheme A: This also called Alternative Investment, which allows up to 5% in newly added asset classes only for private sector subscribers with active choice.
The subscriber is allowed to withdraw funds from the accumulated retirement pension fund once attaining the age of 60 subject to a minimum of 40% of the accumulated fund is utilized for purchasing annuity which provides for monthly pension of the subscriber and rest of the money is paid in lump sum. At the same time, one can defer the withdrawal of the lump sum amount of 60% of the accumulated fund till the age of 70.
In the event of the subscriber withdrawing money before attaining the age of 60, a minimum of 80% of the accumulated fund needs to be utilized for purchasing annuity for providing monthly pension and the remaining amount is paid in lump sum.
In the event of death of the subscriber, 100% of the accumulated fund is given to the nominee or the legal heir.