National pension scheme India

National Pension System (NPS) is a government-backed pension scheme in India, which aims to provide citizens with a regular source of income post-retirement. The scheme was launched in January 2004 and has grown significantly over the years, with over 2 crore subscribers as of September 2021.

NPS is open to all citizens of India between the age of 18 and 60 years, including salaried and self-employed individuals, as well as unorganized sector workers. It is a voluntary, defined contribution scheme, which means that the pension benefits that an individual will receive are based on the contributions made and the returns earned on those contributions.

The contributions made under NPS are invested in a variety of asset classes, such as government bonds, corporate bonds, and equities. The investment pattern of NPS is split between two accounts – the Tier-1 and the Tier-2 account. Tier-1 account is the pension account where contributions are made and the withdrawals are restricted, whereas the Tier-2 account is the voluntary savings account, withdrawals are allowed but contributions are optional.

One of the key features of NPS is its flexibility. Subscribers have the option to choose the asset class and fund manager for their investments, and they can also change their investment choices at any time. Additionally, they can also choose the frequency of their contributions – monthly, quarterly, half-yearly or annually.

Another advantage of NPS is its low cost. The scheme has a low administrative cost and a low fund management cost, making it an attractive option for those looking to save for retirement.

The pension income that an individual will receive under NPS is based on the corpus (the accumulated savings) at the time of retirement. The corpus can be used to purchase an annuity, which is a regular income for a specified period or for the lifetime of the individual. The individual also has the option to withdraw up to 60% of the corpus as a lump sum and use the remaining 40% to purchase an annuity.

The Government of India also provides tax benefits to individuals who invest in NPS. Contributions made under NPS are eligible for tax deductions under Section 80CCD of the Income Tax Act, up to a limit of 10% of the basic salary and dearness allowance (DA) for salaried individuals, and 20% of gross total income for self-employed individuals. Additionally, the maturity proceeds and annuity income are also tax-free.

NPS also offers the option of portability, which means that an individual can continue their NPS account even if they change their job or location. This feature ensures that the individual does not lose out on their accumulated savings and can continue to contribute to the scheme.

The National Pension System (NPS) has several charges that subscribers need to be aware of. These charges can impact the returns on the investments made under the scheme and should be considered when making investment decisions.

• Subscriber registration charges: A one-time charge that is levied on subscribers when they first open an NPS account. This charge is usually around Rs. 125.
• Account maintenance charges: These are the charges that are levied on subscribers for maintaining their NPS account. These charges are usually a small percentage of the account balance, and are deducted on a monthly or quarterly basis.
• Fund management charges: These are the charges that are levied by the pension fund managers for managing the investments made under NPS. These charges are usually a small percentage of the total assets under management, and vary between fund managers.
• Annuity service charges: These are the charges that are levied by the annuity service providers for providing the pension income post-retirement. These charges are usually a small percentage of the annuity income and vary between service providers.
• Exit charges: These are the charges that are levied when a subscriber exits the NPS before the age of 60. These charges are usually a percentage of the corpus and vary based on the age of the subscriber at the time of exit.

It is important to note that these charges may change over time and may vary between different pension fund managers and annuity service providers. Subscribers should check the charges before making any investment decisions and compare the charges across different providers to ensure that they are getting the best deal.

The investment of NPS is managed by Pension Fund Regulatory and Development Authority (PFRDA) approved pension fund managers (PFMs).

There are eight pension fund managers (PFMs) in NPS, which are authorized to manage the funds of the subscribers. These PFMs are:

1. SBI Pension Funds Pvt. Ltd.
2. UTI Retirement Solutions Ltd.
3. ICICI Prudential Pension Funds Management Co. Ltd.
4. Kotak Mahindra Pension Fund Ltd.
5. HDFC Pension Management Co. Ltd.
6. Reliance Capital Pension Fund Ltd.
7. Birla Sun Life Pension Management Ltd.
8. LIC Pension Fund Ltd.

Each PFM has a specific investment strategy and manages the funds based on the investment option chosen by the subscriber. The investment options available in NPS are:

• Active Choice: Subscribers can choose the asset class and fund manager for their investments.
• Auto Choice: Subscribers can choose the asset class but the PFM is chosen by the system based on the subscriber’s risk profile.

Subscribers have the option to choose the frequency of their contributions – monthly, quarterly, half-yearly or annually, and also change their investment choices at any time. The PFM’s performance is monitored by PFRDA on a regular basis, to ensure that they are meeting the expectations of the subscribers and also to ensure that the scheme is running efficiently.

National Pension System (NPS) offers tax benefits to subscribers in India. The contributions made under NPS are eligible for tax deductions under Section 80CCD of the Income Tax Act, up to a certain limit.

1. Section 80CCD(1): Tax deductions are allowed up to 10% of the basic salary and dearness allowance (DA) for salaried individuals, and 20% of gross total income for self-employed individuals. The overall limit of deductions under Section 80CCD(1) along with other sections like Section 80C, Section 80CCC, and Section 80CCD(2) is Rs 1.5 lakhs.
2. Section 80CCD(1B): An additional tax deduction of up to Rs 50,000 is allowed for contributions made to NPS, over and above the limit of Rs 1.5 lakhs under Section 80CCD(1).

There are several advantages of NPS:

1. Flexibility: Subscribers have the option to choose the asset class and fund manager for their investments, and they can also change their investment choices at any time.
2. Low cost: NPS has a low administrative cost and a low fund management cost, making it an attractive option for those looking to save for retirement.
3. Tax benefits: Contributions made under NPS are eligible for tax deductions under Section 80CCD of the Income Tax Act, and the maturity proceeds and annuity income are also tax-free.
4. Portability: Subscribers can continue their NPS account even if they change their job or location, ensuring that they do not lose out on their accumulated savings.

However, as with any investment, there are also some disadvantages to consider:

1. Investment risk: As NPS is a defined contribution scheme, the pension benefits that an individual will receive are based on the contributions made and the returns earned on those contributions. Therefore, the returns on the investment are subject to market risk and can fluctuate.
2. Lack of Guarantee: The pension income that an individual will receive under NPS is based on the corpus (the accumulated savings) at the time of retirement, and there is no guarantee that the corpus will be sufficient to provide a comfortable income post-retirement.

3. Limited investment options: The investment options available under NPS are limited to government bonds, corporate bonds and equities, and do not include other investment options such as real estate, gold, etc.