Pension can be rightly termed as a financial security during old age, when there is no direct source of income. It is a kind of retirement plan to maintain the same kind of financial stability as a person has while he/she is still on job or in service, so he continues to live with pride. The Government of India has made a number of initiatives to prevent the old age people from being helpless during advancing years. One of those many schemes is The National Pension Scheme.
THE NATIONAL PENSION SCHEME (NPS)
Government of India established the Pension Fund Regulatory and Development Authority (PFRDA) IN the year 2003 to regulate and improve the pension sector in the country. Further, the National Pension Scheme was launched in the year 2004 with the intent to provide retirement income to all the citizens of the nation.
Initially the scheme was restricted only to the new government recruits (except armed forces). But from May 2009, it has been made open to all the citizens including the unorganized sector workers on voluntary basis.
Government has also introduced the National Old Age Pension (NOAP) under the aegis of the National Social Assistance Programme monthly pension to 30% of the poorest elderly.
The minimum annual contribution under the scheme is Rs 6000. This amount can be paid in full at once r can be paid in installments of at least Rs. 500
WHO MAY AVAIL THE BENEFIT OF THE NPS
- All Central Government Employees: The benefit of NPS can be availed by all the new employees of the Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service after 1st January 2004. Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under “All Citizen Model” through a point of Presence-service Provider (POP-SP).
- All State Government Employee:The NPS is applicable to all State Government Employees, State Autonomous Bodies joining services after the date of notification by the respective State Government. Any other Government employee who is not mandatorily governed under the NPS can also subscribe to NPS under “All Citizen Model” through a point of presence.
- Corporate: People falling under this head can choose any one of the Pension Fund Manager (PFM) available under “All Citizen Model” and also the percentage in which the funds are allocated in various asset classes.
- Individual:All citizens between the age of 18 and 60 years as on the date of submission of his/her application to Point of Presence (POP) / Point of Presence- Service Provider (POP-SP) can join NPS.
- Unorganized sector workers:Every citizen of India between the age group of 18 and 60 years as on the date of submission of his her application, who belongs to the unorganized sector is not in a State Government or an autonomous body/public sector undertaking of the Central or State government can open NPS- ‘Swavalamban account’. However the subscriber of the ‘Swavalamban account’ should not be covered under social security scheme like EPF and miscellaneous Provisions Act, 1952, the Coal Mines Provident Fund and Miscellaneous Provision Act, 1948, the Seamen’s Provident Fund Act, 1966, The Assam Tea Plantations Provident Fund Act and Pension Fund Act, 1955 and The Jammu & Kashmir Employee’s Provident Fund Act, 1961.
- NRIs covered under NPSAn NRI can open an NPS account. Contributions made by the NRI are subject to regulatory requirements as prescribed by Reserve Bank of India and FEMA from time to time. If the citizenship status changes of the subscriber changes, his/her NPS account would be closed.
INVESTMENT IN NPS INDEPENDENT OF INVESTMENT IN ANY PROVIDENT FUND
Many people have this query that if they invested in ant Provident Fund would they be eligible to invest in NPS. The answer to this question is in positive as even if a person has invested in any other Provident Fund he can still invest in NPS. Further, one can invest in NPS even if he/she has invested in pension funds of non-government/private entities.
NOMINATION UNDER NPS
Any person who wishes to nominate anyone and has not nominated that person in the first place, he/she can do that after the allotment of Permanent Retirement Account number.
At present, Subscriber has option to select any one of the following 8 pension funds:
- ICICI Prudential Pension Fund
- LIC Pension Fund
- Kotak Mahindra Pension Fund
- Reliance Capital Pension Fund
- SBI Pension Fund
- UTI Retirement Solutions Pension Fund LIC Pension Fund
- HDFC Pension Management Company
- DSP Blackrock Pension Fund Managers
TAX BENEFIT UNDER NPS
The tax benefits available to the people who have opted for NPS are as follows:
- Tax benefit to employee: Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution as under: - (a) Employee’s own contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) of Contribution to Pension Plans within the overall ceiling of Rs. 1 lac under Sec 80 CCE. (b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) of Contribution to Pension Plans over and above the limit of Rs. 1 lakh provided under Sec 80 CCE of the said Act.
- Tax benefit for self-employed: Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1 lakh under Sec 80 CCE of the said Act.
ADVANTAGES AND DISADVANTAGES OF NPS ACCOUNT:
The rate of return when one invests in NPS is less as compared to other such schemes for instance GPF. In comparison to the public pension schemes, the EPS provides a significantly lower level of replacement income due to a variety of factors like lack of indexation, ceiling on maximum pension, etc. however under the NPS there is no sales cost and the fund management costs is at .0009, which is by far the lowest in the world.