Todays Special

National Penssion Planning

National Penssion Planning

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, vigilant investment to build a sufficient retirement corpus and its judicious drawdown in the post-retirement phase.

National Pension System which is administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) created by an Act 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.

National Pension System is a voluntary defined contribution retirement savings scheme. NPS is designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.  NPS is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India. As well as it seeks to include the habit of saving for retirement amongst the citizens.

Some Key Features of NPS

  1. 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.
  2. 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.

Advantages of NPS

  1. Flexible: NPS offers a range of investment options and choice of Pension Fund Manager 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
  2. 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:
  1. Tire – 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.
  2. 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.
  1. Portable: NPS provides seamless portability across locations, unlike all current pension plans, including that of the EPFO. It would provide hassle-free arrangement for the individual subscribers.
  2. Regulated: NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust.
  3. 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.
  4. 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.
  5. 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 contributions and contribution to NPS. Apart from this, if there are co-contributions from the employer then
  1. Employer contributing to the NPS on behalf of an employee will get deduction from his income an amount equivalent to the amount contributed or 10% of BASIC SALARY + DA of the employee, whichever is less.
  2. 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/s80CCD (2) of the Income tax Act,1961
  1. A Safe retirement fund: Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority.