The National Pension System (NPS), formerly known as the State Pensions Scheme (SPS), was established under the Social Security Act of 1992. NPS is administered by the Department of Social Protection.
It provides retirement income benefits to people who have paid into the pension system through their employment history. The system is funded from general taxation revenue.
There are two types of memberships:
- Contributory membership and
- Non-Contributory membership.
Contributory members pay a contribution towards their pensions based on their earnings history. Non-contributory members do not make any contributions but receive the same level of benefits as contributory members.
Contributory members can choose between three different levels of benefit payment depending on how much they contribute to the scheme. These are Levels 1, 2, and 3. Level 1 members get the highest monthly payments, while Level 3 members get the lowest.
Non-contributory members can only access the basic benefits that contributory members receive. They cannot access additional benefits like medical cards or supplementary benefits.
NPS, ordered by PFRDA, is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India. In this context, the board objective is as under:
- a) It has provided old-age income
- b) Reasonable returns on market based should be provided long term.
- c) Old-age security coverage provides to all citizens.
National Pension System (NPS) Summary
- National Pension System (NPS) is a government-run retirement program that provides old-age financial security. It was established in India in 1952 and has been implemented in various forms since then. Currently, National Pension Scheme (NPS) covers over 1 million people.
- NPS consists of two components – defined contribution (DC) and defined benefit (DB). In DC plans, employees contribute into their own accounts based on their salary/wages and employers make contributions on behalf of their workers. In DB plans, both employer and employee contributions towards a common fund are compensated according to the final balance at retirement.
- NPS can be divided into three categories based on the type of benefits offered –
- General Insurance Plans (GIP): This includes schemes like Employees’ State Insurance (ESI), Employees’ Provident Fund Organisation (EPFO), etc.
- Post Retirement Annuity Plan (PRAP): This is a fixed income plan after retirement.
- Defined Benefit Pension Scheme (DBPS): This is a combination of GIP and PRAP.
National Pension System Features
The following significant features are offered by NPS to help you after retirement:
- A unique permanent Retirement Account Number (PRAN) should be allotted to you.
- Said unique number will remain the same for the rest of your life. You will permit to use this account and this unique PRAN from any place in India.
PRAN should provide access to two personal accounts:
- Tier-I Pension Account: You contribute your savings for retirement into the non-withdrawal account which is available from May 2009.
- Tier-II saving Account: It is generally a voluntary saving facility, you will independently withdraw your savings account whenever you wish which is available from Dec 2009.
Under NPS, money invests in your own choice. NPS offers six fund managers and multiple investment options to choose from. In case you do not want to exercise a choice as regards asset allocation, your money will be invested as per the “Auto Choice” option.
You can open an NPS account with authorized branches where you are interested in service providers called ‘Points of Presence’ (POPs). You have the facility to shift from one branch to another branch of POP at your convenience.
The tax benefits under NPS will be as per the provisions of the Income Tax Act, 1961 as amended.
National Pension Scheme Benefits
1. Pension Benefits
A pension is a benefit that is paid out from your employer’s contribution towards your retirement fund. This is usually done through a company-based scheme called National Pension Scheme (NPS). In NPS, the amount of money contributed to your account by your employer is known as the ‘contribution’ and this can vary depending on the number of employees in the business.
2. Retirement Benefit
The other side of the coin is what you get back after you have worked for a certain period of time. This is known as the retirement benefit’. You are entitled to receive this benefit once you reach the age of 55 years old. The retirement benefit is calculated according to the number of years you work and the salary you earn.
3. Other Benefits
Benefits are additional payments given to you from your employer. These may include things like bonuses, profit sharing, etc. They are not considered regular income but they do help contribute towards the total sum of your monthly income.
Things to Know in National Pension System
A person will enroll in the NPS at any time if he is a citizen of India and at least 18 yrs of age: no entry is, however, allowed after 60 yrs of age, he has the advantage compounding of his wealth by starting right away. The earlier he starts the greater will be the growth of his pension.
To enroll in the NPS, submit the registration form (UOS-S1) to the POP-SP of his choice. The form is available from POP-SPs and the PFRDA Web site (www.pfrda.org.in), after your account is opened, CRA shall mail you a “Welcome Kit” containing your Permanent Requirement Account Number (PRAN) and other details relating to your account. Your PRAN will be the primary means of identifying the account. You shall also separately receive a Telephone Password (TPIN) which you will meet to access (1-800-222080). You will also be given an Internet Password(IPIN) for accessing your account on the CRA Website (www.npscra.nsdl.co.in).
You are required to make your first contribution at the time of applying for registration at any POP-SP. He is required to make contributions subject to the following conditions:
- The minimum amount per month is Rs. 500
- The minimum amount per year is Rs. 6000
- The minimum number of contributions 1 per year.
Over and above the mandated limit of a minimum of one contribution, a person may decide on the frequency of the contributions across the year at their convenience.
The facility of Tier-II Account (saving Account) is available from 1st Dec’2009 to citizens of India including Govt employees mandatorily covered by NPS, who hold a Tier-I Account. Tier II is a withdrawal account with an aim to provide a window of liquidity to NPS subscribers. An active Tier-I account is a prerequisite for opening a Tier-II account.
KEY FEATURES OF TIER-II ACCOUNT
No Addl CRA charges will be levied for account opening and annual maintenance in r/o Tier-II:
- No limits number of withdrawals from Tier-II accounts.
- It is a facility for separate maintenance and scheme preference in Tier-II accounts.
- Bank details are mandatory for opening a Tier-II account.
- No separate KYC for opening a Tier-II account is required for opening a Tier-I account.
Minimum Contribution Requirement
- The minimum amount when opening an account is Rs. 1,000
- The minimum amount per contribution is Rs.250
- The minimum balance at the end of FY is Rs.2,000
- The penalty levied Rs.100 from subscribers for not maintaining account balance or not making the minimum amount of contributions.
Avail Benefits at a Low Cost
NPS offers Indian citizens a low-cost option for planning their retirement. A 0.0009%* fee (based on assets under management) for managing your Wealth, makes pension funds under NPS perhaps the world’s lowest-cost money managers. Details charges are as under:
Intermediary Charge Head Service Charge Method if deduction CRA PRA opening charge-
Annual para maintenance
Cost per Account-
Charge per transaction-
Through cancellation of unit POP (the maximum permissible charge for each subscriber) Initial subscriber registration and contribution upload-
Any subsequent transaction-
To be collected upfront Trustee Bank Per transaction emanating from RBI location-
Per transaction emanating from a non-RBI location-
Through NAV deduction Custodian (on asset value in custody) Asset servicing charge Rs. 0.0075% pa for electric segment & Rs. 0.05% pa for the physical segment Through NAV deduction PFM charge Investment management fee Rs. 0.0009% pa Through NAV deduction
Service tax and other levies, as applicable, will be charged as per the existing tax laws. There are no added CRA charges for the maintenance of the Tier-II Account.
How to fill national pension system form?
- In order to receive your monthly pension benefits, you need to complete a National Pension System (NPS) form.
- This form needs to be completed online using our NPS website. You may have to register first before you can use the site.
- Once registered, you will need to select the “My Account” tab. Then click on the “Login” button. If you are not already logged in, you will then be prompted to log in.
- After logging into your account, you will then be directed to the “New Form” page. Click on the “New Form Now” button.
- On the next screen, enter your personal details. Enter your full name, gender, date of birth, address, telephone number, email address, occupation, and relationship status.
- Select the type of pension that you wish to apply for.
National Pension System Trust (NPS)
The NPS is a multi-billion pound private investment fund that was set up under the Labour government in 2004. Its aim is to provide people over the age of 55 years old access to pensions. This should help them live longer and healthier lives while providing extra money for the NHS. However, many experts believe that this could lead to increased privatization of the NHS. The NPS has a total value of £2.5 trillion and is worth around £9 billion per year.
INVESTING IN THE NPS
The NPS called offers two approaches to investing in your account:
- Active choice – Individual Funds(E, C & G Asset class)
- Auto choice – Life Cycle Fund)
ACTIVE CHOICE – INDIVIDUAL FUNDS
You have decided to option as to how your NPS pension wealth is to invest the following three(3) options:
E – “High Return, High Risk”
C – “Medium Return, Medium Risk”
G – “Low Return, Low Risk”
A person has to choose to invest her entire pension wealth in C or G asset classes and up to a maximum of 50% in equity (Asset Class E). You can also distribute your pension wealth across E, C, and G asset classes, subject to such conditions as may be prescribed by PFRDA.
AUTO CHOICE – LIFECYCLE FUNDS
NPS offers an easy option for those persons who do not have the required knowledge to manage their investments.
GETTING YOUR MONEY OUT
Vesting Criteria Benefit At any point in time before 60 yrs of age You would be required to invest at least 80% of the pension wealth to purchase a life annuity from any IRDA- regulated Life Insurance Company (LIC). Rest 20% of the pension wealth may be withdrawn as a lump sum. On attaining the age of 60 yrs to 70 yrs At the exit, you would be required to invest a minimum of 40% of your accumulated saving (pension wealth) to purchase of life annuity from any IRDA-regulated Life Insurance Company (LIC).
You can choose to purchase an annuity for an Amt greater than 40%. The remaining pension wealth can either be withdrawn in a lump sum upon attaining the age of 60 or in a phased manner between age 60 and 70 at the option of the subscriber.
Death due to any cause In such type unfortunate event, the option will be available to the nominee to receive 100% of the NPS pension wealth in a lump sum.
Tax benefits would be available as per the Income Tax Act 1961 as amended from time to time.
Who can join national pension system?
All citizens over 18 years old in India can join National Pension System (NPS), The government has stated that any citizen who meets the criteria set forth by law will have access to the public pension system. This includes those who are currently employed, self-employed, retired, and unemployed.
What is the important of A National Pension System?
A national pension system is a type of social security system that provides retirement income for its members. In other words, it is a program designed to provide benefits to people who have paid into the program through their work and contributions. These benefits can include pensions, medical insurance, unemployment insurance, disability insurance, and others.
Who shall be responsible for protecting my interests as an NPS subscriber?
PFRDA is the regulator for the NPS and will endeavor to protect the interests of the subscribers through prudential norms of investment etc.
What is the process for enrolling in NPS?
If you are an individual between the ages of 18 to 60 yrs
- You would be required to go to your nearest POP-SP.
- You need to duly fill in the subscriber registration form and attach the prescribed documents before submitting it to the authorized person at the POP-SP (the list POP- SPs shall be available at the PFRDA website www.pfrda.org.in. and the website of the concerned POP).
- Upon registration, you shall receive the PRAN from CRA.
- Thereon, you can make minimum contributions of INR 500 per transaction and INR 6,000 per year. There is no limit on the maximum Amt that you can contribute in a year or the maximum number of contributions that you may make during the year (The minimum number of contributions is one).
What will happen if I relocate to another city or country?
A. The PRAN shall remain the same and you shall be able to access your Permanent Retirement Account (PRAN) from anywhere in India, based on the IPIN sent to you by the CRA. The details of your PRAN and the Statement Of Transaction (SOT) shall be available on the CRA website (nsdl.co.in) on a 24×7 basis.
Personal information is held confidential?
Your personal information could not be disclosed to a third person (outside NPS) without your expressed or implied consent. The information will be used internally or for creating awareness (telephone / written) of the new service NPS. However, there are some exceptions, viz. disclosure of information under compulsion of law, where there is a duty to the public to disclose and where the interest of the NPS requires disclosure.
Under what circumstances can my account be closed before attaining NRA?
Your account should be closed under various circumstances, such as:
- Account value reduces to zero
- Citizenship status is changed
Normal Retirement Age FAQs
Can exit before attaining the age of 60 yrs?
Yes, you can exit the system before attaining the age of 60 yrs provided you annuitize at least 80% of your pension corpus.
Can be part of the system after attaining the age of 70 yrs?
The annuity will continue, however, any lump sum to the credit of the subscriber’s account will have to be compulsorily withdrawn on or before the age of 70 yrs.
What if don’t withdraw the non-annuitized portion at or before 70 yrs?
If you don’t request withdrawal of the balance lump sum amount in your account before 70 yrs, then on attaining the age of 70 yrs, your account should be closed with the benefits transferred to you.
Can exit the system in phases over the age band of 60 to 70 yrs?
Yes, phased withdrawal is allowed subject to certain conditions. please refer to the “Benefits” section.
Can the maximum age of exit from NPS (presently 70 yrs) change after joining the system?
The age of exit is reviewed by PFRDA from time to time.
Benefits in NPS FAQs
Invest more than 40% of my pension wealth to purchase the annuity?
Yes, you may choose to invest up to 100% of your pension wealth to purchase the annuity.
Who are operate the Tier-II account?
Tier-II accounts should be opened by anyone who has a Tier-I account.
What will be the conditions for opening a Tier-II account?
You should need to have an active Tier-I account to open a Tier-II account under NPS.