National Pension Scheme Features And Benefits
Sunita, a fifty-year-old widower, is the sole bread earner for a family of five and works as a government employee. Always worried about her children’s future, Sunita decided to make some wise decisions for her after retirement. Upon detailed research, she figured out that the National Pension Scheme is the best way to secure a safe future. Following are the reasons how the National Pension Scheme betters your life.
What are Pension Schemes?
The rate of uncertainty worldwide has left everyone overwhelmed. The deep-rooted fear of the uncertain has caused people to scatter around looking for plannings and backs-ups of some kinds related to various aspects of life. Pension schemes are one such viable option for a secure future.
A Pension Scheme is a long-term savings plan that aids in later life after the retirement of a working professional. Investments are always a wise option, and if this investment can support you throughout your future, it is always ideal to go for it. Similarly, a pension scheme is a long-term investment where you save up some money during your work life and reap its benefits once you retire. It is one of the most tax-efficient ways of saving.
The National Pension System
The National Pension System is the full form of NPS, a widely known voluntary, government-sponsored scheme sanctioned in January 2004 and became open to all sections of the working classes in 2009. These sections include employees from public, private, and unorganized sectors except for the armed forces.
A government employee can regularly put up tiny amounts of money in their pension account during their work period. The account-holder can comfortably withdraw lump-sum and keep the rest amount secure for a worry-free future.
How does the National Pension System Work?
This social initiative by the central government is one of the most viable and tax-efficient savings options. All the National Pension System operations are regulated by Pension Fund Regulatory and Development Authority (PFRDA). The NPS services for account opening are available both offline and online. There are two primary accounts under the National Pension System, tier I and tier II.
Tier I is a default account and does not permit withdrawals, whereas the Tier II account is voluntary with permissions to carry out withdrawals.
The minimum NPS contribution for tier I varies from Rs. 500 or Rs. 1000 per annum, whereas the minimum contribution amount for the tier II account is Rs. 250. Both the tier accounts have no limit on the maximum amount. The account subscriber can easily calculate their monthly pension and the tax benefits and other details using a National Pension System Calculator. This calculator can be simply accessed online and makes calculating NPS effortless.
Once you create an online or offline account for your National Pension System Account, you will receive a Permanent Retirement Account Number (PRAN). This PRAN becomes the subscriber’s user id to log in to the eNPS-NSDL website.
Who can benefit from the National Pension System?
Savings for the future using a government-based initiative is always a safe plan. Anyone from the working classes/sectors willing to invest in a better and safer future can opt for the National Pension System. This ideal setting aids you in many ways as compared to other savings plans.
Features and Benefits of National Pension System
Returns and Interest
The NPS avails much higher returns on savings than the other tax-saving investments. The annualized returns delivered vary from 8% to 10%.
The investment cap for the government employees is 50%, and in general, it ranges from 75% to 50%. Once an investor crosses 60 years of age, the cap is fixed at 50%, thus stabilizing the risk-return equation for the investor’s interest, making it safe from the equity market’s volatility.
Tax Efficiency- NPS tax benefit
The subscribers face a dedication of up to 1.5 lakh to be claimed for NPS. The maximum deduction one can claim under 80CCD is 10% of their salary, and a self-employed taxpayer can gain up to 20% deduction of the gross income.
Easy Withdrawal and Simple Exit Rules
It is crucial to continue investing in a pension scheme until the age of 60, and a continuous investment for at least three years allows you a withdrawal opportunity of up to 25% for varied stated purposes. These purposes may include a child’s wedding, higher education, home investment, among others.
The market is full of investment schemes and options. However, it is crucial to select a scheme that matches your risk profile, investment goal and provides maximum benefits. NPS scheme is ideal for you if you require a carefree and safe investment for your brighter future. This article helped you understand the basis of the National Pension System. Happy Savings to a Safer Future.
Who can join the NPS scheme?
Any Indian citizen in the age group of 18 to 60 can avail of the benefits of the National Pension System. Every person in this category must comply with the Know Your Customer (KYC) Norms.
How can one join NPS Offline?
One requires opening up an NPS account with entities known as Point of Presence (POP). Mainly all the private and public sector banks are established as POPs. There are some financial institutes as well which work as POPs. One can visit the nearest point of the presence service provider to avail all the facilities of the National Pension System.