The National Pension System (NPS) is a voluntary, long-term retirement savings scheme designed to enable systematic savings for retirement. It was introduced by the Government of India and is managed by the Pension Fund Regulatory and Development Authority (PFRDA). The NPS was launched in January 2004 for government employees and later extended to all citizens in 2009.
Here are key features of the National Pension System:
Contributors: NPS is open to all Indian citizens, including both resident and non-resident individuals, between the ages of 18 and 60. It is also available to employees in the organized and unorganized sectors.
Tiered Structure: NPS has a two-tiered structure - Tier I and Tier II.
Tier I: This is a mandatory, long-term retirement account with restrictions on withdrawals. Subscribers contribute regularly and build a corpus over time. Withdrawals are allowed under specified conditions, primarily related to retirement age or certain specified emergencies.
Tier II: This is a voluntary savings facility that provides more flexibility with withdrawals and contributions. Subscribers can withdraw money from this account whenever needed. However, to open a Tier II account, it is mandatory to have an active Tier I account.
Choice of Investment Options: NPS offers a choice of investment options to subscribers. They can allocate their contributions across different asset classes, including Equity (E), Corporate Bonds (C), and Government Securities (G). The Pension Fund Managers (PFMs) manage these funds.
Pension Fund Managers: Subscribers can choose from a list of Pension Fund Managers who manage the investment portfolio on their behalf. These fund managers are appointed by the PFRDA.
Portability: NPS is portable across jobs and locations. Individuals can continue their NPS account even if they change jobs or move to a different city.
Tax Benefits: NPS provides tax benefits under various sections of the Income Tax Act. Contributions made by the subscriber, employer contributions (if any), and the returns generated on the investment are all eligible for tax benefits.
Withdrawal Options: At the time of retirement or reaching the age of 60, the subscriber can withdraw a certain percentage of the corpus as a lump sum, and the remaining amount is used to purchase an annuity, which provides a regular pension.
NPS aims to provide financial security in old age and encourage systematic savings for retirement planning. It's important for individuals to understand the features, benefits, and risks associated with the National Pension System before enrolling.
