Swavalamban Yojna New Pension System NPS Lite PFRDA By Govt Of India for Everyone
The Pension Fund Regulatory and Development Authority (PFRDA) is a pension regulatory authority which was established by Government of India on August 23 2003. PFRDA is authorized by Ministry of Finance, Department of Financial Services. PFRDA promotes old age income security by establishing, developing and regulating pension funds and protects the interests of subscribers to schemes of pension funds and related matters. PFRDA is responsible for appointment of various intermediate agencies such as Central Record Keeping Agency (CRA), Pension Fund Managers, Custodian, NPS Trustee Bank, etc.
1. What is retirement planning and how to ensure an independent life even when one retires from active work life?
Retirement planning involves disciplined saving, vigilant investment to build a sufficient retirement corpus and its judicious drawdown in the post-retirement phase. This is achieved by joining a pension/retirement plan at an early stage in one’s life so that when a person retires from active work life, he gets a regular stream of income in the form of pension or annuity for his life.
2. What are the pension plans available in India?
National Pension System (NPS) which is administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) created by an Act of Parliament. Besides the NPS, some mutual funds and insurance companies also offer Pension plan or retirement plan, which are not under the jurisdiction of PFRDA. Apart from this the normal retirement plan options include EPFO, Retirement gratuity etc. is offered by employers to their workers and employees.
3. What is National Pension System (NPS)?
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
- Under the NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of government bonds, bills, corporate debentures and shares. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
- At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empanelled life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
4. What are the advantages in joining NPS?
- Flexible– NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow. Individuals can switch over from one investment option to another or from one fund manager to another subject, of course, to certain regulatory restrictions. The returns being totally market-related.
- Simple – Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is structured into two tiers:
- Tier-I account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.
- Tier-II account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.
- Portable- NPS provides seamless portability across jobs and across locations, unlike all current pension plans, including that of the EPFO. It would provide hassle-free arrangement for the individual subscribers.
- Regulated- NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust.
Benefits of NPS
Dual benefit of Low Cost and Power of compounding – The account maintenance costs under NPS are the lowest as compared to similar pension products available in India, like retirement plans offered by Insurance companies and mutual funds. While saving for a long-term goal such as retirement, the cost matters a lot. Over 35-40 years, the charges can shave off a significant amount from the corpus.
Till the retirement pension wealth accumulation grows over a period of time with a compounding effect.The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
A flexible investment option: Subscribers have control on the choice of investment made and the fund manager who manages the investments. Subscribers can switch over from one investment option to another or from one fund manager to another subject, of course, to certain regulatory restrictions.
Tax benefits: The first benefit of the NPS consists of the income tax deduction that is available to the individuals when they make their own contribution to the fund. There is an overall limit of Rs 1 lakh for contributions under eligible investments for Section 80C, pension fund contributions (Section 80CCC) and contribution to NPS (Section 80CCD). Apart from this, if there are co-contributions from the employer, then
- Employer contributing to the NPS on behalf of an employee will get deduction from his income (i.e. employer’s income) an amount equivalent to the amount contributed or 10% of BASIC SALARY + DA of the employee, whichever is less. (Section 36 (1) (iv a) of the Income Tax Act 1961)
- Employer’s contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s80CCD(2) of the Income tax Act,1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1 lac u/s 80C of the Income tax Act,1961. This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD(2) of the Income tax Act,1961
A safe retirement fund : Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority (PFRDA).
- The scheme is applicable for all citizens of India (age group of 18-60 years) in the unorganised sector, person will be deemed to belong to the unorganised sector if that personis not in regular employment of the Central or a state government, or an autonomous body/ public sector undertaking of the Central or state government having employer assisted retirement benefit scheme, oris not covered by a social security scheme under any of the following laws:
- Employees’ Provident Fund and Miscellaneous Provisions Act,1952
- The Coal Mines Provident Fund and Miscellaneous Provisions Act,1948
- The Seamen’s Provident Fund Act, 1966
- The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act 1955
- The Jammu and Kashmir Employees’ Provident Fund Act, 1961
The scheme will be applicable to all persons in the unorganised sector subject to the condition that the benefit of Central Government contribution will be available only to those persons whose contribution to NPS is minimum Rs.1,000 and maximum Rs. 12,000 per annum, for both Tier I and II taken together, provided that the person makes a minimum contribution of Rs. 1000 per annum to his Tier I NPS account.
- The exit from the Swavalamban Scheme would be on the same terms and conditions on which exit from Tier-I account of NPS is permitted, that is, exit at age 60 with 40% minimum annuitisation of pension wealth and exit before age 60 with 80% minimum annuitisation of pension wealth. However, the exit would be subject to the overriding condition that the amount of pension wealth to be annuitised should be sufficient to yield a minimum amount of Rs. 1,000 per month. If the annuitized pension wealth does not yield an amount of Rs. 1,000 per month, the percentage of pension wealth to be annuitised would be increased so that the pension amount becomes Rs. 1,000 per month, failing which the entire pension wealth would be subject to annuitisation. This minimum pension ceiling may be revised from time to time.
Vesting Criteria Benefit At any point in time before 60 years 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. Rest 20% of the pension wealth may be withdrawn as lump sum. On attaining the Age of 60 years. *At exit you would be required to invest minimum 40% of your accumulated savings (pension wealth) to purchase a life annuity from any IRDA-regulated life insurance company empanelled with PFRDA. You may choose to purchase an annuity for an amount greater than 40 percent. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60. Death due to any cause In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum. However, if the nominee wishes to continue with the NPS, he/she shall have to subscribe to NPS individually after following due KYC procedure.
*However, the exit would be subject to the overriding condition that the amount of pension wealth to be annuitised should be sufficient to yield a minimum amount of Rs. 1,000 per month. If the annuitized pension wealth does not yield an amount of Rs. 1,000 per month, the percentage of pension wealth to be annuitised would be increased so that the pension amount becomes Rs. 1,000 per month, failing which the entire pension wealth would be subject to annuitisation. This minimum pension ceiling may be revised from time to time.