All You Need To Know About National Pension Scheme (NPS)

Post-retirement is the phase of life that everyone thinks about... Some start planning it early, while others think of it at a later stage. So, irrespective of the sector you work in, one should think about investing in schemes and instruments that can provide you good returns post-retirement. For this there are multiple options available, National Pension Scheme (NPS) being one of the many. 

So, let’s have a look at what NPS is all about.

What is National Pension Scheme?

According to the website of National Pension System Trust, NPS is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.  This scheme was launched in 2004 for government employees. But later on in 2009, was opened for all. Any one in the age bracket of 18-65 can join this scheme. There are two types of accounts Tier I and Tier II. Tier I is a mandatory account where as Tier II is voluntary account.

How are these two accounts different?

The major difference between both the accounts lies in the withdrawal of the money invested. As per rules, you can’t withdraw the entire money from Tier I account till you retire and even after there are some restrictions imposed on the withdrawal. However, one can withdraw the entire money from the tier 2 accounts.

Minimum contribution: -

On has to make minimum contribution of Rs 1,000 in a financial year. There is also a 50% ceiling on investing in equity. Life cycle fund - LC75 is also available so same may be changed accordingly.

Who manages all these funds?

Pension Fund Regulatory Development Authority (PFRDA) is managing the funds and registered pension fund managers such as UTI Retirement Solutions Pension Fund, HDFC Pension Management Company are the few who manages funds for NPS. 

Is this the only pension plan available?

No, there are multiple pension plans being offered by the insurance companies and mutual funds. But they don’t come under the jurisdiction of Pension Fund Regulatory Authority (PFRDA). And there are some other plans such as Employee Provident Fund (EPF) and gratuity offered by employer to their employees.

Annuity and Maturity?

A national investment matures at the age of 60. Now it can be extended up to age of 70  yrs. And if the corpus is more than Rs 2 lakh, the entire sum can be withdrawn and if it exceeds that limit than the person has to invest 40% of the corpus in annuity in order to get monthly pension. The investor is free to choose any annuity option and provider.

Now, it is important for youngsters to start investing in NPS or other pension plans to secure your future after getting retired.