NPS (New Pension scheme) is a social security scheme for all especially for public from unorganized sector including self employed persons and professionals.
The National Pension System (NPS) was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens.
Investors contribute defined monthly amounts towards NPS. This amount will be invested in pre-designed schemes and investors can opt for the choice and risk profile.
On retirement, a part of the corpus grown can be withdrawn as lump sum and the balance will be paid as pension annuity.
There are two NPS accounts . Tier -1 and Tier-2.
Tier-1 is a mandatory non-withdrawable pension account. Money can be taken either on maturity i.e. on attaining 60 years or partial withdrawal is allowed.Before 60 years 20% of the fund can be withdrawn and rest can be used for pension annuity. Between 60 years to 70 years, 60% can be withdrawn and balance 40% is to be used for pension annuity. In case of death, the nominee will get all the money.
Tier-2 is withdraw able account and we can withdraw money at any time. But Govt contribution and tax rebate is not available for this option.
Since NPS is regulated by PFRDA( pension fund regulatory development authority), it is giving six choices for investors as fund managers for tier-2. Investor can switch over from one fund manager to other fund manager if need be.
The fund managers for Tier-1 are
• LIC pension
• SBI pension
• UTI retirement solution Ltd
The fund managers for Tier-2 are
• ICICI Prudential Life Insurance Company Limited
• IDFC Asset Management Asset Management Company Limited
• Kotak Mahindra Asset Management Company Limited
• Reliance Capital Asset Management Company Limited
• SBI Pension Funds Limited
• UTI Retirement Solutions Limited
Investor can open their account in any one of the banks/institutions as mentioned below.They are called Points of presence (POP)
• Allahabad Bank
• Axis Bank Ltd.
• Bajaj Allianz General Insurance Co Ltd.
• Central Bank of India Citibank N.A.
• Computer Age Management Services Private Ltd.
• ICICI Bank Ltd or icici direct through online.
• IDBI Bank Ltd.
• IL&FS Securities Services Ltd.
• Kotak Mahindra Bank Ltd.
• Life Insurance Corporation of India Oriental Bank of Commerce Reliance Capital Ltd.
• State Bank of Bikaner & Jaipur State Bank of Hyderabad
• State Bank of India
• State Bank of Indore
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Travancore
• The South Indian Bank Ltd.
• Union Bank of India
• UTI Asset Management Company Ltd.
One permanent Retirement Account Number (PRAN) will be issued to the investor. It is a 16 digit number that will remains constant in spite of any change in jobs or change in fund managers.
NPS account can be opened by resident Indian or NRI (aged between 18 to 60 years) by visiting the nearest POP.
KYC(Know your customer ) form, application form, address and id proof, 2 passport size photos, age proof etc. are to be given to POP for opening the account. Choice of preferred scheme is to be given in the application and also asset allocation choice.
A subscriber must choose between active choice and auto-choice for distribution of his contribution. If active choice is selected, the subscriber must indicate the percentage distribution between corporate, gilt and equity. The maximum investment allowed in equity is 50%.
The contribution to the fund is Rs.500 per month or Rs.6000 per year for Tier -1 and Rs.250 pm for Tier-2. Rs.3000 under Tier -2 can be remitted at one instalment. Minimum one instalment of remittance is necessary for the account. The initial contribution of Rs.1000 is a must for Tier -2 account. The admin cost will be around 0.0009%. There should be one transaction atleast per year.
Once the account opened, NSDL through their Central Record keeping Agency (CRA) would send a permanent account number (PRAN) , the internet PIN, Telephone PIN, information booklet etc. within 15 days. Online follow up of application can be viewed through http://www.npscra.nsdl.co.in using the acknowledgement number .
Additional tax incentives upto Rs.50,000 under Section 80CCD from Financial year 2015-16 for investing in NPS is an effort not just to boost retirement savings, but also popularise the government scheme. This new proposal can help those in highest tax bracket of 30 per cent save an additional Rs. 16,000 in taxes. Those in 20 tax bracket can save over Rs. 10,000 while those in 10 per cent can save over Rs. 5,000.
The major drawback in NPS is that retirement benefits received at the end will be taxed and it is not taxable in EPF.