NPS stands for the National Pension Scheme. It is a Central Government initiative that works towards social security. This pension scheme is open to employees from all sectors— private, public, or even the unorganised sectors except those who belong to the armed forces. The goal of the scheme is to encourage people to invest in a pension account during the course of their employment at regular intervals. The subscribers can withdraw a certain percentage of the corpus after retirement.
As an account holder of the National Pension Scheme, you will receive the rest of the amount post-retirement as monthly pensions. You can also avail of this service by performing an NPS login into your account. Earlier, the scheme was only applicable to Central Government employees, but now the PFRDA has opened it up to all Indian citizens who voluntarily want to invest in the scheme. It holds enormous value for those who work in the private sector, as everyone wants a regular pension after retirement. The scheme is portable across locations and jobs, with tax benefits under Section 80CCD and Section 80C.
Who should invest in the NPS?
The National Pension Scheme is meant for all those who wish to have a secure life post-retirement and have a low-risk appetite. Financial security during your post-retirement years will no doubt be a huge relief, especially if you work in the private sector. A strategic and systematic investment can make a huge difference in the post-retirement lifestyle.
Features and Benefits of NPS
A part of the National Pension Scheme or NPS goes to equities. Even though it may not offer guaranteed returns, its returns are more than other tax-saving investments. The National Pension Scheme has been operating for over a decade and has so far delivered 8-10% annualised returns. If you are not happy with the fund’s performance, you are allowed to change your fund manager in the NPS.
There is currently a 50% cap on equity exposure for the NPS. It results in the stabilisation of the equation of risk-return in the investors’ interest, meaning that the corpus is relatively secure from the volatility of the equity market. The NPS’s earnings are much higher than other schemes of fixed income. In fact, it has been proposed by PFRDA that the cap on equity exposure will be increased to 75%.
Up to Rs.1.5 lakhs deduction has to be claimed for the National Pension scheme for the contribution of the employer as well as the employee. The self-contribution (part of the 80C Section) is covered by 80CCD(1). You can claim a maximum deduction of 10% of your salary under 80CCD(1), but it can’t be more than the said limit. This limit is 20% of the gross income of the self-employed taxpayer. Any additional self-contribution of up to Rs. 50,000 can be claimed under 80CCD(1B). Therefore, this scheme allows a total tax deduction of Rs. 2 lakh.
Withdrawal Rules After 60:
Contrary to the assumptions that people have, you can’t take out the entire NPS corpus by NPS login into your account after your retirement. You mandatorily need to set aside at least 40% of it so that you receive a regular pension from an insurance firm registered with the PFRDA. Of the remaining 60%, 20% is subject to taxation according to the tax slab, and the remaining 40% is tax-free.
Early Exit and Withdrawal rules:
As NPS is a pension scheme, you are required to keep investing in it until you are 60 years of age. However, you may withdraw up to 25% of the amount when you are in need if you have been investing for at least three years. These occasions can be financial emergencies like investing in a house, medical treatment, or other family expenses. You can withdraw money up to three times during the entire tenure. These restrictions only apply to the tier 1 accounts, not to the tier II ones.
Equity Allocation Rules:
The National Pension Scheme invests in many other schemes, with the Scheme E investing in equity. A maximum of 50% of your investment can be invested in equities. For this, you have two options— active choice and auto choice. The risk profile of your investments according to your age is decided by auto choice. For example, the older you are, your investments are less risky and more stable. The active choice allows you to split your investments and decide on the scheme.
Option to change the Scheme or Fund Manager:
When it comes to the National Pension Scheme, you can change the fund manager or the pension scheme if you are happy with how it is performing. This option applies to both tier I and tier II accounts.
National Pension Scheme Rules
Following are some NPS rules that you must know if you are planning to apply for the scheme:
Trail commission payment through PoP:
PFRDA has allowed the NPS login account holders to perform trial commission payments via POPs ( Points of Presence). However, it has been clarified by the pension fund regulator that the trial commission on the National Pension Scheme contributions made via D-Remit will be the same as eNPS by those subscribers who were onboarded by the corresponding Point of Presence. The rule is applicable after September 1st, 2022.
For D-Remit Contributions of the associated subscribers, the trail commission to PoPs shall be @0.20% of the contribution amount, similar to eNPS. Periodical unit deductions would recover the applicable charges.
NPS e-nomination flow:
The process for e-nomination for both the private and corporate sector employees has been recently changed by PFRDA. This new rule will be effective from October 1st, 2022. According to the process flow of the new NPS e-nomination, the nodal office will hold the option to either reject or accept the e-nomination request of the NPS account holder. If no action is initiated by the nodal office against the request within one month of its allotment, the Central Recordkeeping Agencies (CRA) system will accept the e-nomination request.
No separate form for buying an annuity:
No separate form is required for buying an annuity at the time of maturity. This decision has been taken by the IRDAI to relax the onboarding process for the National Pension Scheme subscribers. The exit from the NPS scheme will now be taken as a proposal for purchasing an annuity from life insurance companies.
Submission of digital life certificates:
The insurance companies have been asked by IRDAI to ease the submission process for life certificates. They have been directed to follow Aadhaar-based verification or authentication for the life certificate.
1. Can I withdraw from NPS anytime?
If the total corpus accumulated is less than or equal to Rs. 2.5 lakh, you can avail of the complete withdrawal option. However, you can exit the program only after the completion of at least five years.
2. What is the NPS lock-in period?
The investments made in the National Pension Scheme are locked in until 60 years of age. A maximum of 60% of your corpus can be withdrawn when you reach the age of 60 years. The 40% of the corpus left can be used for purchasing an annuity.
3. What happens to my NPS account login credentials if I quit my job?
If the subscriber wants to withdraw from the NPS before the age of 60, they can only withdraw about 20% of the corpus accumulated till then. The rest of the money can be used by the subscriber to buy the annuity.
4. How many times can a subscriber withdraw an amount from the NPS account by conducting an NPS login?
The subscribers can withdraw their amount only after three years of participation in the National Pension Scheme. The NPS amount can be withdrawn partially for a maximum of three times during the NPS account tenure by conducting an NPS login.