NPS Diwas is a critical initiative to promote awareness about retirement planning. Celebrated on October 01, it emphasises the importance of securing one’s financial future through informed investment decisions.
With increasing life expectancy, planning for a sufficient retirement corpus has never been more crucial. NPS Diwas serves as a reminder for individuals to take proactive steps towards a secure and comfortable retirement by leveraging the benefits of the National Pension System (NPS).
NPS was introduced in January 2004 as a retirement plan for government employees. In 2009, it was opened to everyone, not just government employees.
NPS is a long-term voluntary pension scheme designed for employees, public or private, to create a retirement corpus.
The NPS is run by both the government and the Pension Fund Regulatory and Development Authority (PFRDA). It is a long-term, voluntary savings plan aimed at helping people save for retirement.
While the NPS doesn’t guarantee a fixed pension, it offers the chance for good investment returns. The goal is to encourage workers to save regularly in their pension accounts while they are employed.
When a person retires, they can withdraw part of their savings, and the rest is given as a monthly pension. This helps provide a steady income after retirement.
How Can NPS Be Subscribed and How Does It Work?
Sunil Samuel, VP, CPIO Department, Protean eGov Technologies said that any Indian citizen, resident or NRI/OCI, between 18 and 70 years of age and KYC complaint can opt to start their NPS account, either by enrolling online or offline, with PFRDA recognised service providers.
Once you register for an NPS account, you will be allotted a Permanent Retirement Account Number (PRAN).
How NPS Works?
Samuel explained the account types and how the system works.
NPS accounts are of two types: Tier-1 NPS account which is your pension account, opens with a minimum amount of Rs 500 and with a minimum investment of Rs 1000 every year to keep the account active.
Your entire investment will remain invested until you reach 60 years of age. Post that, you will be able to withdraw 60% of your accumulated corpus and the remaining 40% can be used to purchase an annuity to generate a stable monthly income. Up to 25% of the corpus can be partially withdrawn after completion of 3 years under specified circumstances.
An NPS Tier-2 account is a voluntary investment account that you can open by investing at least Rs 1000 and then you can contribute any particular amount at any point in time. There is no lock-in period for withdrawals which means you will be able to withdraw funds at any point in time, but do not have any tax benefits.
NPS also allows its account holders flexibility in making investment choices.
The two types of investment choices are Active Choice and Auto Choice. You can select Active Choice if you prefer to choose your asset allocation yourself; else, opt for Auto Choice where funds will automatically be allocated to asset classes as per the age.
NPS for Retirement Planning
Highlighting the significance of retirement planning and the benefits of the NPS, Kurian Jose, CEO of Tata Pension Management said that NPS has emerged as a superior long-term investment option, particularly for individuals seeking financial security post-retirement.
Key Features of NPS
Jose added NPS offers a unique combination of flexibility, low cost, and the potential for higher returns. Unlike other investment schemes, NPS provides the benefit of market-linked growth while also offering a stable pension at retirement.
Contributions made to NPS are professionally managed by Pension Fund Managers (PFMs), ensuring a disciplined and structured investment approach. The power of compounding plays a significant role, making even small, consistent contributions grow exponentially over time.
One of the major advantages of NPS is the tax benefits it offers under both the old tax and new tax regimes.
Under the new tax regime, the deduction of expenditure by employers towards NPS is 14 per cent of the employee’s salary.
Additionally, NPS offers flexibility in choosing asset classes, enabling investors to tailor their portfolios to their risk tolerance.
NPS Tax Benefit
Investing in the NPS gives tax benefits under Section 80 CCD of the Income Tax Act, up to Rs 1.5 lakh. Withdrawing 60% of the NPS savings is tax-free, making it an attractive option for retirement planning.
