National Pension System: (NPS-2023)

Retirement is a time in our lives that most of us look forward to. It’s a time to relax, pursue hobbies, and spend quality time with family. However, the financial aspect of retirement planning is something that many people tend to overlook. In India, the National Pension System (NPS) has been introduced to help individuals secure their financial future during their retirement years. In this blog post, we will explore the NPS, its benefits, who can open an account, and the various investment options it offers.

What is the National Pension System (NPS)?

The National Pension System is a voluntary retirement savings scheme that allows individuals to contribute towards their retirement savings. It aims to provide a sustainable solution to the challenge of ensuring adequate retirement income for all citizens of India. NPS is administered and monitored by the Pension Fund Regulatory and Development Authority (PFRDA). At the time of retirement, NPS subscribers can use the accumulated pension wealth to purchase a life annuity from a PFRDA-empaneled life insurance company or withdraw a part of the accumulated wealth as a lump sum.

Who Can Open an National Pension System Account under the All Citizen Model?

The All Citizen Model of NPS is open to all citizens of India, whether they are residents or non-residents. To be eligible, the applicant must be between 18 and 70 years of age at the time of application and must comply with the Know Your Customer (KYC) norms.

Benefits of National Pension System Account

1. Low Cost: NPS is recognized as one of the world’s lowest-cost pension schemes. The administrative charges and fund management fees are also among the lowest.



2. Simple: Opening an NPS account is a straightforward process. All you need to do is open an account with any of the Point of Presence (POP) offices located across India and obtain a Permanent Retirement Account Number (PRAN).

3. Flexible: NPS offers flexibility in choosing your investment options and pension fund. You can even select the Auto Choice option for potentially better returns.

4. Portable: You can operate your NPS account from anywhere in the country and make contributions through any POP-Service Provider (POP-SP) branch, even if you change your location or job. The account can also be shifted to other sectors like the Government Sector or Corporate Model if you change your employment.

Tax Benefits:

NPS provides tax benefits for both employees and self-employed individuals. Employees can enjoy tax deductions on their contributions, as well as their employer’s contributions, under Section 80CCD(1) and Section 80CCD(2) of the Income Tax Act, 1961. Self-employed individuals are also eligible for tax deductions under Section 80CCD(1), in addition to deductions allowed under Section 80CCD(1B) for additional contributions to their NPS accounts.

Types of National Pension System Accounts

NPS offers two types of accounts:

1. Tier-I Account: This is a mandatory savings account for retirement. It comes with restricted withdrawal options and offers tax benefits.

2. Tier-II Account: This is a voluntary savings account that allows you to withdraw your savings at any time. However, it does not offer tax benefits.

National Pension System  Contribution

Subscribers can contribute to their NPS accounts through various methods, including cash, local checks, demand drafts, or the Electronic Clearing System (ECS). For cash transactions exceeding Rs. 50,000, subscribers need to submit a copy of their PAN card to comply with anti-money laundering (AML) rules. The minimum contribution at the time of account opening is Rs. 500, and the minimum annual contribution is Rs. 1,000, excluding charges and taxes. A minimum of one contribution per year is required.

How to Open an National Pension System Account

• Opening an NPS account is a straightforward process. Here are the steps to follow:
• Procure a Permanent Retirement Account Number (PRAN) application form from a Point of Presence – Service Provider (POP-SP) or the NPS website.
• Fill out the PRAN application form with the necessary details, including a photograph, signature, scheme preference, and submit Know Your Customer (KYC) documentation for proof of identity and address.
• Submit the PRAN application form and KYC documents to your nearest POP-SP.
• Track the status of your PRAN application using the receipt number provided at the time of submission.
• Make your first contribution (a minimum of Rs. 500) when applying for registration to any POP-SP.

Investment Options

NPS offers two main investment options:

1. Active Choice: This option allows subscribers to actively decide how their pension wealth is invested in various asset classes, including equity (Asset Class E), fixed income (Asset Class C), government securities (Asset Class G), and alternative investment schemes (Asset Class A).

2. Auto Choice – Lifecycle Fund: This option is suitable for those who may not have the knowledge to manage their NPS investments. Funds are invested in a pre-defined portfolio based on the subscriber’s age, with exposure to equity decreasing as the subscriber gets older.

Withdrawal/Exit

Withdrawal from the NPS can be done under the following circumstances:

Upon reaching the age of 60: At least 40% of the accumulated pension wealth must be used to purchase an annuity for a monthly pension, with the balance available as a lump sum. If the total corpus is less than Rs. 5 lakhs, the subscriber can opt for 100% lump sum withdrawal.

Before reaching the age of 60: Subscribers can exit the NPS before turning 60 if they have completed 10 years in the system. At least 80% of the accumulated pension wealth must be used to purchase an annuity, with the rest available as a lump sum.

In the event of the subscriber’s death: In such cases, the nominee can receive 100% of the NPS pension wealth as a lump sum or choose to continue with NPS by subscribing individually.

Here are the simplified steps for the second part of the registration process:

How to Register for NPS with Aadhaar or Driving License

Step 1: Prepare Your Documents

Make sure you have either a valid Aadhaar card or a Driving License uploaded in your Digilocker account.

Step 2: Start the Registration

After successful authentication, your basic details such as your name, gender, date of birth, address, and photo will be fetched from your Digilocker account.
Step 3: Provide Additional Details

Fill in any other necessary details online.
Step 4: Submit Documents

Upload a scanned copy of your PAN card and a canceled check in JPEG, JPG, PNG, or PDF (unsigned) format. Ensure that the file size is between 4KB and 2MB.

Upload your scanned signature in JPEG, JPG, or PNG format, with a file size between 4KB and 5MB.

Step 5: Payment Process

You’ll be directed to a payment gateway to make contributions to your NPS account. This can be done through Internet Banking or UPI.
Step 6: Choose Authentication Method

You have the option to either follow OTP authentication or eSign the registration form with the Central Recordkeeping Agency (CRA). Detailed instructions for both methods are available in the ‘Process for OTP Authentication / eSign / View Registration form’ section.
Step 7: Contributions Processing

Contributions to your PRAN are typically credited on a T+2 basis, pending the receipt of clear funds from the Payment Gateway Service Provider.
Step 8: Corporate Subscriber Registration

For corporate subscribers, no initial contribution is required.
After Receiving Your PRAN: OTP Authentication and eSign

Option 1 – OTP Authentication:

Choose the ‘OTP Authenticate Subscriber Registration Form’ option in the OTP Authentication / eSign / View Registration page.

Enter the provided Captcha and click ‘Generate OTP.’

You’ll receive two different OTPs on your registered email ID and mobile number. Enter both OTPs, the Captcha, and click ‘Verify OTP.’

Option 2 – eSign:

Select the ‘eSign’ option in the eSign section.

An OTP for authentication will be sent to your mobile number registered with Aadhaar.

After successful Aadhaar authentication, your registration form will be eSigned.

Please note that eSign service charges, plus applicable taxes, amount to Rs. 5.90.

Conclusion

The National Pension System (NPS) offers an attractive retirement savings option for all citizens of India, providing flexibility, low costs, and tax benefits. With the All Citizen Model, NPS aims to ensure that every Indian can secure their financial future and enjoy a comfortable retirement. It’s a simple and accessible scheme that can be tailored to your financial goals and preferences, making it an excellent choice for planning your retirement. So, consider opening an NPS account and take a step towards a more financially secure future.

Read also:

Demystifying Home Loans : Your Comprehensive Guide (Nov 2023)