The New Pension Scheme (NPS) has so far not seen too many takers after the government opened the scheme to the public in 2009. However, the investment scenario will most likely change in favour of NPS once the proposals under the latest Direct Taxes Code (DTC) are implemented.
This is because the DTC has proposed to include NPS in the list of investments that are eligible for tax deduction under Section 80C. These developments make NPS an interesting investment avenue. This week, ET Intelligence Group brings you all that you would want to know about NPS. We will also discuss in length about the various schemes available under NPS and their performance.
NPS is a defined contribution scheme wherein an individual can open a tier I account and invest a regular sum of money till retirement. Professional fund managers manage funds invested under the scheme. At the time of retirement, investors can avail as a lump-sum a maximum of 60% of the total pension wealth generated by NPS over the years.
The remaining sum has to be invested in an annuity plan. Buying an immediate annuity assures a regular payment from the insurance company. This payment can be monthly, once every three months, once every six months or even once a year.
Originally started for central and state government employees, the scheme is now open to any Indian citizen between the age of 18 and 55. The retirement age is fixed at 60 years. Individuals do have the flexibility to leave the pension system prior to age 60. The investor also has the option of opening a tier II account, which permits voluntary savings that can be withdrawn at any point of time. But to be eligible to open a tier II account, one needs a tier I account.
The government has set up the Pension Fund Regulatory and Development Authority (PFRDA) to monitor the NPS. To open an NPS account, pick up the NPS registration form (UOS-S1) either from PFRDA’s website or from point of presence (PoP). There are 22-registered PoP’s that have authorised branches to act as collection points and extend services to customers. For a detailed cost structure, refer the adjacent table.
Once you submit the duly filled forms to PoP, Central Recordkeeping Agency (CRA) will process it and provide you with a permanent retirement account number (PRAN). PRAN will be the primary means of identifying and operating the NPS account. You will also receive a telephone password (TPIN) and an internet password (IPIN) to access your account.
At the time of registration, you need to make your first contribution to the plan. The minimum investment limit is Rs 500 a month or Rs 6,000 annually. Subscribers are required to contribute at least once a quarter but there is no ceiling on how many times you invest during the year.