NPS / Pension Plans – Definition, Benefits, Contribution, Process & more
Retirement is often considered a new phase of life. A time, when you are free from all your responsibilities; at least up to an extent. However, the catch here is to plan is advance, if you really want to be free, especially from the financial ones. Here is a famous fashion followed for the planning process, the NPS or National Pension System. Investing is all kind of retirement oriented plans does the job, and NPS is one of them. This is an offering by the government, oriented to be a tax saving investment option. You must have already heard about it, yes, it is wanted and this article serves as the updates guide, on pension plans.
What is NPS or Pension Plan?
NPS emerged out of the Indian government’s retirement related investment plans. NPS Full Form, or in other words, NPS meaning is “National Pension Scheme”. This scheme is you go to investment option, wherein you can invest on a daily basis, while working. When the retirement time arrives, you get a medium of constant investment, when the plan actually starts paying out. This shall present as the means to fulfill all your expenses at a time, when you are no longer working, and have no major source of income. The payouts are classified into two different segments. This means, you can partly get a lump sum in one half of the payment, and also receive annuity payments, for the second half pay outs.
NPS Contribution & its Strategy
For starters, for either medium of NPS Contribution investment you need to select several options, i.e. the fund options, the pension fund (PF) manager, the investment strategy and even the annuity provider. Failing to choose any of such options would lead to the default selection in National Pension Scheme.
Pension fund manager
Here choosing the entity which would manage your funds is chosen. You may choose from one of the following PF managers – LIC Pension Fund, SBI Pension Funds, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, and Birla Sun Life Pension Management.
Investment option
You may choose to invest in Active Choice or the Auto choice. For the active choice, the availed chose the funds as per personal preference, and the Auto choice, also known as Lifestyle Fund, is an aged based automatic allocation of funds.
Annuity provider
When investment matures, one will have to purchase a medium of annuity, an insurance company as such. 60 percent can be immediately withdrawn whereas the rest of the amount needs to be purchased. Life Insurance Corporation of India, SBI Life Insurance, ICICI Prudential Life Insurance, HDFC Standard Life Insurance and Star Union Dai-ichi Life Insurance are the present service providers.
Annuity scheme
The scheme of annuity now needs to be selected. You may choose from
- Annuity for Life
- Annuity for Life with return of purchase price on death
- *Annuity payable for life with 100% annuity payable to spouse on death of annuitant
- Annuity payable for life with 100% annuity payable to spouse on death of annuitant with return on purchase of annuity
List of all NPS Schemes in India
Types of NPS Investment
The plan allows the holders to avail for 2 National Pension System accounts. One of them is a mandatory NPS account, while the other one can be selected as per personal interest. The choice to invest in only one mandatory account or for avail for both the co joined accounts relies upon the holder.
Mandatory Account – Tier I
Availing for this scheme, the Tier I account is mandatorily provided. Investment for this account starts with INR 500, and a mandatory deposit of INR 1000 in a financial year. No withdrawals from the account are allowed, till age of retirement, i.e. 60, but exemptions do exist, and they are as follows.
- Unemployment for 60 days or more
- Paying for marriage expenses
- Medical emergencies
- Buying a house, and others
Optional Account – Tier II
This account being a chosen account, you get flexibility up to an extent. You can ease of withdrawals at times of need and interest. The criterion of this account is that, it can be availed for only after having the tier I account.
Amount of INR 250 is compulsory to start with the investment, and at times of default you will lose access to the account. Penalty of getting the account back is INR 100 and a thorough follow up procedure. Also, one account for one individual is applicable, as one individual cannot have multiple accounts.
Benefits of NPS Contribution
We want benefits which outnumber other investment schemes, in order to select the one most offering scheme. Here are the NPS Tax Benefits, which are likely to influence you into investing in NPS Contribution.
- They are basically focused into giving you tax savings. You may choose to pay 10% of your salary to the scheme and receive tax reduction, under section 80CCD (1). The maximum possible claim is INR 1.5 lakhs, and investment of additional INR 50,000 is possible under the same section (1B). Over and above section 80C and Section 89 CCD limit of INR 1.5 lakhs, being a salaried employee, you may also receive additional section 80 CCD (2), if your employer is also a contributor, up to 10% of salary. This advantage, brings the tax obligation criteria supposed to be met by individuals, down.
- The time of maturity provides 60% of lump sum withdrawal, and is absolutely tax free.
- Annuity payments are part of the scheme, which ensures you a fixed payment after retirement when the other sources comes to a stop.
- Minimum contribution being all time low, investors with a low margin may as well invest.
- Returns provided are generally inflation adjusted, hence, fulfilling the future obligations of money requirements.
How NPS is calculated?
You may refer to the NPS Calculator, in order to determine How NPS is calculated?. The information you will need to enter into the calculator is:
- Current age ad expected retirement age
- Per month investment amount
- Expected returns from NPS Investment
- Annuity period
- Percentage of pension wealth invested in the plan
- Expected rate of return in annuity investment.
How to Invest in NPS? – NPS Online Investment & NPS Offline Investment
Your option to invest in the scheme is both possible through online medium and also offline medium. We put them both up here, for your feasibility.
NPS Investment Online
eNPS is easier and less time consuming, and hence you may choose to avail for it through the NPS NSDL website, online. Follow these steps precisely
- Visit the official website:https://enps.nsdl.com/eNPS/NationalPensionSystem.html, following which you need to NPS Login into the page.
- Simply visit the site, log in, and then visit the option of “National Pension Scheme” in the home page.
- You now need to register and perform all the identification process.
- The process will require you to provide details such as type of investor, citizenship, bank account from which the payments will be made and lastly, PAN card number.
- Following which, you need to enter in your family details, like name, age, address and more, as asked.
- When you are done entering the information, an acknowledgement number will be provided to you.
- This number then needs to be used in order to generate Permanent Retirement Account Number (PRAN).
- Then proceed and sign the form electronically, to wind up the procedure.
- This was the end of registration, which would be the start of your payment procedure. The amount depends upon you to decide.
Offline medium
You need to locate the nearest POP or point of presence, the financial institution registered to provide the service. Banks and non banking institutions often register for it, and so, you need to locate the same and consult them with your investment. This way you will have access to the scheme. For easy locating of nearest branch, visit the official website of Pension Fund Regulatory and Development Authority (PFRDA).
Documents required for NPS Investment
Registration procedure for NPS Investment indulges showing up a bunch of documents, for both the online as well as offline procedures, at time of NPS Form filling.
- Fully filled up registration form
- Identity proof
- Age proof
- Address proof
- Pan
- Aadhaar
- Passport size photographs.
Eligibility Criteria for NPS Contribution
In order to successfully avail for the NPS Contribution scheme, you need to be eligible as per the norms set up by the Indian government. The norms are as follows:
- The individual in concern shall be an Indian citizen
- NRIs may as well invest, but change of citizenship amid the investment period, will lead to closure of the account.
- The age criterion for investment is in between 18 to 60 years.
NPS or Pension Plan – Conclusion
While you dig in all the investment schemes related to retirement, this shall be your consideration. Being an offering from the government and also aimed towards tax reduction, it shall be a great investment option. We made the article aiming to provide the necessary insights on NPS, and choose to spread the knowledge. The efforts of your investment ideas, shall find means in this article, and we are open to the idea of making people aware of the existing benefiting schemes.
National Pension Scheme FAQs
Answer – NPS stands for national pension scheme which is the go to investment option where you can invest on a daily basis while working side-by-side. Just when your retirement arrives, you get a medium of constant investment when your entire plan starts to pay out in its entirety. This will help in fulfilling all your expenses at one time when you’re not working at all.
Answer – Those who are about to get retired or planning to achieve a hefty sum pre-retirement must invest in NPS or national pension plan. Retirement is considered a new phase of life when you are free from all of your responsibilities and worries. Therefore, planning in advance is an absolute necessity and NPS makes sure you are totally secured.
Answer – NPS fund managers receive subscriber contributions and buy securities as far as equity and bonds are concerned, from the market. They also try their level best to increase the returns for a given amount of risk.
Answer – In this very article on our website we have provided the customers with the chart and a table showing the list of best NPS schemes in India. HDFC Pension Plans, ICICI Pension Plans and SBI pension plans are some of them.
Answer – NPS provides its customers with two types of accounts: Tier 1 and Tier 2. Tire 1 is a necessary retirement account while Tier 2 is a voluntary saving account that is associated with your PAN. Tier 2 offers immense flexibility in terms of withdrawal whereas in Tier 1 there is no feasibility as such.
- Mandatory Account/Tier 1- Investment for this account starts with INR 500 and there is a deposit of INR 1000 in one financial year. No withdrawals whatsoever are allowed from this account till the age of retirement.
- Optional Account/Tier 2- This account provides a lot of flexibility to the customers where you can easily opt for withdrawal at times of distress. Amount of INR 250 is compulsory to start with this particular investment.
Answer – There is a triple tax benefit while investing through NPS. NPS is one of those investment options wherein you can invest and save tax. You can invest the entire amount in NPS and if at all you wish then you can claim the deduction as well. There is also an additional NPS benefit given only to impress investors, under which you can claim your tax deduction for investments ranging up to 5 lakhs.
Answer – Refer to the NPS calculator in order to figure out the NPS scheme. All the information needed over here will be:
- Present age of the investor and his or her expected retirement age.
- Expected returns from the NPS investment.
- Percentage of pension wealth invested in the plan.
- Per month investment amount.
- Annuity period
Answer – While you figure out all the schemes of investment related to retirement, this should be your consideration. It is an offering from the government and it is aimed toward extreme tax reduction. Having said that, it is a great investment option as such, extremely safe minus all complexities.
- The individual should be an Indian citizen.
- The age criterion for investment is in between 18 to 60 years.
- NRIs can invest but change of citizenship in between investment period will lead to account closure.
