Introduction to the National Pension System in India
The National Pension System (NPS) was introduced in India in 2004 with the objective of providing retirement benefits to all citizens of the country. The NPS is a defined contribution pension scheme wherein the subscribers contribute towards their retirement corpus during their working life. The corpus is then used to provide them with a regular income during their retirement years.
The NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA) and there are multiple service providers who offer NPS products. The NPS offers two types of accounts – Tier I and Tier II. The Tier I account is a mandatory account and the subscriber cannot withdraw from this account before retirement. The Tier II account is a voluntary account and the subscriber can withdraw from this account at any time.
The NPS has seen a steady growth in recent years and as of March 2020, there are over 1.3 crore subscribers with a total corpus of over Rs. 2 lakh crore. The NPS is a good retirement planning option and offers several benefits such as tax benefits, flexibility, portability, and transparency.
Eligibility and how to join the National Pension System in India
The National Pension System (NPS) was introduced in India in January, 2004 with an objective to provide old age income security to all the citizens of the country. The scheme is open to all Indian citizens between the ages of 18 and 60 years.
There are two ways of joining the National Pension System in India:
1. Voluntary - Any Indian citizen between the ages of 18 and 60 years can join the NPS voluntarily.
2. Automatic - All new government employees (except those employed in the armed forces) who join service on or after 1st January, 2004, are mandatorily covered under the NPS.
To join the NPS, you need to open an account with any of the authorised Point of Presence (POP) or aggregators. Once you have opened an account, you need to choose a Pension Fund Manager (PFM) of your choice and invest in any of the schemes offered by them.
The NPS contributions are invested in a mix of equity, debt and government securities as per the asset allocation decided by the Pension Fund Regulatory and Development Authority (PFRDA). The investment mix is decided based on your age and risk appetite.
The NPS offers two types of accounts:
1. Tier I account: This is a mandatory account and contributions made to this account are not withdrawable before retirement.
2. Tier II account: This is a voluntary account and contributions made to this account can be withdrawn anytime.
The NPS scheme offers many benefits such as:
1. Flexibility: You can choose your own investment mix as per your risk appetite.
2. Portability: You can switch between pension fund managers and also between schemes offered by the same pension fund manager.
3. Tax benefits: Contributions made to the NPS account are eligible for deduction under Section 80C of the Income Tax Act.
4. Death benefit: In the event of death of the subscriber, the nominee will receive the accumulated corpus.
5. Withdrawal benefit: On retirement, the subscriber can withdraw up to 60% of the corpus as lump sum and use the remaining 40% to buy
Benefits of the National Pension System in India
The National Pension System (NPS) was introduced in India in January, 2004 with the objective of providing old age income security to all the citizens of the country. The scheme is open to all Indian citizens between the ages of 18 and 60 years. The scheme has been designed keeping in view the socio-economic needs of the country. It is a voluntary, defined contribution pension scheme with the government contributing a matching amount for every contribution made by the subscriber.
The scheme provides for old age income security to all the citizens of the country and is therefore, a very important social security measure. Some of the key benefits of the scheme are as follows:
1. The scheme provides for a regular income stream during the retirement years.
2. The scheme helps in building up a corpus which can be used for meeting various expenses during the retirement years.
3. The scheme also provides for death benefit in the form of a lump sum payment to the nominee in the event of the subscriber's death.
Thus, the National Pension System is a very important social security measure which provides for old age income security to all the citizens of the country.
Drawbacks of the National Pension System in India
The National Pension System (NPS) was introduced in India in January, 2004 with the objective of providing old age income security to the citizens of the country. The scheme is open to all citizens of India between the ages of 18 and 60 years. The scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA).
However, there are certain drawbacks of the NPS which are as follows:
1. Lack of Awareness: There is lack of awareness about the National Pension System among the general public. This is because the scheme was introduced only in 2004 and hence, not many people are aware of it.
2. Volatility of Returns: The returns on investment under the NPS are not guaranteed. They are subject to market risks and hence, are volatile in nature. This means that the NPS may not be able to provide the desired returns to the investors.
3. Limited Investment Options: The NPS offers only two investment options viz., equity and debt. This limits the investment choices of the investors and they may not be able to invest in other asset classes such as gold, real estate, etc.
4. High Exit Charges: The NPS has high exit charges for those who exit the scheme before the age of 60 years. This is because the scheme is designed for long-term investment and hence, the exit charges are levied to discourage premature withdrawal.
Comparison of the National Pension System with other pension schemes in India
A lot of debate has been going on regarding the best pension scheme in India. There are various schemes available with different features. So, which scheme should one opt for? In this article, we will compare the National Pension System (NPS) with other pension schemes in India.
The National Pension System (NPS) was introduced by the Government of India in 2004. It is a defined contribution pension scheme. Under this scheme, the subscriber contributes a fixed sum of money every month towards his/her retirement corpus. The corpus is then invested in a mix of equity, debt and government securities by the Pension Fund Regulatory and Development Authority (PFRDA). The subscriber can choose the asset class in which he/she wants to invest the money. The returns on the investment are not guaranteed.
The NPS has two accounts – Tier I and Tier II. The Tier I account is a mandatory account and the subscriber cannot withdraw the money before retirement. The Tier II account is a voluntary account and the subscriber can withdraw the money from this account as and when required.
The major difference between the NPS and other pension schemes is that the NPS is a market-linked scheme. The returns on investment are not guaranteed. Also, the subscriber has the option to choose the asset class in which he/she wants to invest the money.
The Employees’ Provident Fund Organisation (EPFO) is a government organisation that manages the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS). The EPF is a retirement benefits scheme for the employees of the organised sector. Both the employer and the employee contribute 12% of the employee’s basic salary towards the EPF account. The EPS is a defined benefit pension scheme and the employee does not have to contribute towards it.
The EPS is a defined benefit pension scheme and the employee does not have to contribute towards it. The EPFO invests the EPF money in a mix of government securities, debt instruments and equity. The returns on investment are guaranteed.
The Public Provident Fund (PPF) is a long-term investment scheme managed by the Government of India. Under this scheme,
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