National Pension System (NPS) is the scheme offered by government for the non-government employees. Pension Fund Regulatory and Development Authority (PFRDA) is regulator who manages the pension funds. All the central and state government employees are compulsorily covered under the pension schemes. These pension savings are utilized after the retirement for your expenses and converted to annuities to receive the monthly income.
But, if you are working in a non-govt. company, your post retirement life is not protected with adequate savings unless if you plan with mutual funds, EPF, etc. To help them, govt. is maintain the National Pension System (NPS) for non-government employees. This article explores the basic details about the NPS and how to create an account with NPS. If you have questions, please post it in the comments section. If you want to receive future mail about investments, please subscribe here.
How to open new account?
There are two types of accounts in the National Pension System (NPS).
- Tier – I
- It is compulsory for all the account holders. The money invested in this account can not be withdrawn at any time. It is complete locked in account till your retirement age. Investor can withdraw maximum of 60% of amount invested after the age of 60.
- Remaining amount has to be invested on any of the annuities suggested by the government.
- It is not mandatory to open the bank account to hold this account.
- This type of account is available from 1 May 2009.
- Tier – II
- It is optional account for the pension scheme account holders. But, if you want to open this account, you must have opened the Tier – I account.
- To have bank account is mandatory for opening Tier -II account.
- Investor can withdraw the amount any time, there is no restrictions.
The above details are about the two types of accounts under pension scheme. The question is, where investor has to open this account?. It is easy to open in a designated branches of bank mentioned by the govt. For example, ICICI allows their customers to open NPS account here.
Contributions towards NPS
PFRDA has come up with the guidelines to the investors. The following are few of the points to consider:
- The minimum amount per contribution is Rs. 500
- Minimum number of contributions in a year is 1
- Minimum annual contribution: Rs 6,000 in each subscriber account.
If the account holder could not pay the minimum amount for a year, there will be a Rs. 100 penalty for that. The account also will be dormant and has to activate by paying the minimum amount and penalty for not maintaining the minimum amount. If the balance becomes zero, the account will be closed.
Features of National Pension System
The following are some of the key features on NPS:
- It is a pension scheme for non-government employees or individual.
- This is open to anyone who are between 18-60 years of age including NRIs
- There is no maximum contribution.
- The subscribe has the option to choose auto or manual choice for distribution of his contributions.
- Investor can make the contributions till 60 years.
- Pension will start at the age of 60.
- Tax benefit under section 80C for the investments.
- If you exit the NPS before 60 years, the 80% of the invested amount has to be spent of buying a annuity from IRDA suggested insurer. This is bad for the investors if they want to take out the lump sum money instead of buying an annuity.Remaining 20% of the amount can be taken as lump sum.
- If the investors continues till 60 years, 40% of the amount has to be invested on buying an annuity. Only 60% can be given to investor as the lump sum amount.
- If the subscribe continues after 70 years, the account will be closed and the remaining amount will be transferred to the account as lump sum.
There are many other points has to be discussed on National Pension System (NPS). This article provides only the basic idea on NPS and what are the accounts available for the investors. I will come up with further articles on the investment options and choosing the fund managers for your portfolio. You can expect those topics in the next week. Till the time, if you have any questions please post it in the comments section. If you want to receive future articles from me, please subscribe here.