Post Office National Pension Scheme
Riya’s father recently retired from his job. The family has started struggling a little, financially, as Riya is now the sole earner for the family of four. This has also made her think about the future, when she retires she wants to live comfortably and not worry about money. Riya starts researching and looking for pension schemes. She finds out about the National Pension Scheme in the post office. She learns about the ways to invest and different plans available, which are as follows:
What is the post office national pension scheme?
The government of India sponsors a national pension scheme that can be invested through the post office. The national pension scheme was introduced by the government in 2009. It is a voluntary retirement scheme where you can invest at regular intervals during your employment to have adequate retirement income in the future.
This scheme is available for private, public and also unorganised sector employees except for people in the army. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) .NPS Post offices are appointed as a Point of presence(pop) by the Pension Fund Regulatory and Development Authority (PFRDA). Points of presence are destinations from where you can invest in an NPS.
Types of NPS post office account
There are 2 types of post office NPS you can invest in.
Tier 1 account-To invest in post office NPS, you have to compulsorily open this account. Also, to open an account in tier 2 you need to have a tier 1 account. The tax-saving benefits offered in post office NPS can be claimed for the investments in this account only.
The investment you make in a tier 1 account is restricted till you reach the age of 60. For taking out money before the age of 60, you can make a premature exit or make a partial withdraw for a specified purpose.
Tier 2 account- These are add on, optional accounts that can be subscribed to by any tier 1 account holder. They are flexible and subscribers can invest and withdraw from this account without any exit load.No tax-saving benefits are available for this type of account.
The different types of contributions that need to be made under post office NPS-
- Minimum transaction for account opening and subsequent contributions- rs 500
- Minimum contribution in tier 1 for 1 financial year- rs 1000
- Maximum transactions- no limit
- Minimum contribution in a year -1
- Minimum transaction for opening a tier 2 account- rs 1000
- The minimum amount for the subsequent transactions- rs 250.
Transaction charges that have to be paid for subscribing to post office NPS-
- Registration chargers 200 without taxes
- Service charge per service request- rs 20 excluding taxes.
- Contribution charge per contribution made to the NPS post office plan- 0.25%. The minimum charge payable is- rs 20. Maximum charge payable is-rs 25,000.
There are two investment choices under post office NPS- auto choice option and active choice option in four asset classes –corporate debt, government securities, equities, and alternative investment funds (AIFs). Auto choice option- these are the automatic allocation of your portfolio. In this option, you do not have to decide on your investment and your money is invested into asset classes based on your age.
You have 3 life cycle funds to choose from
- Moderate Life Cycle Fund: default option the equity exposure is capped to a maximum of 50%.
- Conservative Life Cycle Fund: a conservative approach to investing. Here the maximum equity allocation is capped at 25%.
- Aggressive Life cycle Fund: maximum equity allocation is 75%.
- Active choice options- In this option, you get to design your own portfolio. You can decide how much you want to invest in each asset based on your own preference. The things that you have to decide to include your pension fund manager, asset classes and the percentage allocation in each scheme.
Tax saving benefits
Subscribes of post office NPS, under section 80 CCD(1), can claim a deduction of up to Rs 1.5 lakhs. The maximum deduction that can be claimed is 10% of the salary. For self-employed taxpayers, the maximum deduction that can be claimed is 20% of gross income. Under subsection 80 CCD (1b) of the income tax act, an additional deduction is available for investment up to Rs 50,000 in the Tier 1 account. This deduction is over the deduction of rs 1.5 lakhs available under section 18 c
Post office NPS is an easy and affordable mode of investment. This social security plan is a beneficial planning tool for your future. The risk involved is very minimal and by choosing this scheme your retirement will be very smooth sailing.
What is the eligibility for opening a post office NPS?
You should be a citizen of India.
You should be between the ages of 18 to 65 years.
You should not be a part of NPS under any other sector.
You must invest once a year. The amount must be rs 500 or above.
You must contribute a minimum amount of rs 1000 in a year.
How can you withdraw money from the post office NPS?
When you reach the age of 60, you can withdraw 60% of your accumulated amount and the remaining share is invested for the pension whose time period, monthly or quarterly is chosen by you. If the total accumulated amount is less than and equal to rs 2 lakhs, you can withdraw 100% of the amount.
You can also opt for a premature exit after completing 10 years in post office NPS if the need arises. You can withdraw 20% of your accumulated amount and the remaining share is invested for the pension whose time period, monthly or quarterly is chosen by you. If the accumulated amount is less than or equal to Rs 1 lakh, you may withdraw 100% of the amount.
In case of demise of the NPS subscribed,100% of the accumulated amount is transferred to the legal heir/nominee of the subscriber.