Why National Pension System is one of the best options for Retirement planning

What is NPS?

The Central Government has introduced the National Pension System (NPS) with effect from January 01, 2004 (except for armed forces). NPS was made available to All Citizens of India from May 01, 2009. Pension Fund Regulatory and Development Authority (PFRDA), the regulatory body for NPS, has appointed NSDL as Central Recordkeeping Agency (CRA) for National Pension System. CRA is the first of its kind venture in India which will carry out the functions of Record Keeping, Administration, and Customer Service for all subscribers under NPS. CRA shall issue a Permanent Retirement Account Number (PRAN) to each subscriber and maintain a database of each Permanent Retirement account along with recording transactions relating to each PRAN.

National Pension System (NPS), Regulated By PFRDA, is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India. 

It has the following broad objectives

• Provide old age income
• Reasonable market based returns over the long term
• Extending old age security coverage to all citizens

Opening NPS account has its own advantages as compared to other pension product available. 

Below are few features which make NPS different from others:

1. Low-cost product. Fund management fee capped at 0.01%.
2. Tax benefits for Individuals, Employees and Employers.
3. Attractive market-linked returns.
4. Professionally managed by experienced Pension Funds.
5. It is voluntary - A Subscriber can contribute at any point of time in a Financial Year and also change the amount he wants to set aside and save every year.
6. It is simple - Subscriber is required to open an account with any one of the POPs (Point of Presence) or through eNPS (https://enps.nsdl.com/eNPS/).
7. It is flexible - Subscribers can choose their own investment options and pension fund and see their money grow.
8. It is portable - Subscribers can operate their account from anywhere, even if they change the city and/or employment.
9. It is regulated - NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.

Who can join?

Any individual citizen of India (both resident and Non-resident) in the age group of 18-65 years (as on the date of submission of NPS application) can join NPS.

Can an NRI join NPS?

Yes, an NRI can open an NPS account. Contributions made by NRI are subject to regulatory requirements as prescribed by RBI and FEMA from time to time.However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and HUFs are not eligible for opening of NPS account.

NPS offers two approaches to invest in your account

Unlike traditional investment products, NPS offers you the flexibility to design your own portfolio. Depending on your risk appetite, you can design your portfolio by allocating Funds amongst available four asset classes. This is called Active Choice. Following are the four asset classes are available under Active choice:

• Equity or E- A 'high return-high risk' fund that invests predominantly in equity market instruments
• Corporate Debt or C - A 'medium return-medium risk' fund that invests predominantly in fixed income bearing instruments
• Government Securities or G - A 'low return-low risk' fund that invests purely in Government Securities
• Alternative Investment Funds or A – In this asset class, investments are being made in instruments like CMBS, MBS, REITS, AIFs, InvITs(infrastructure investment trusts) etc.

At times designing your portfolio can be a little delicate and time-consuming. NPS gives you the flexibility to opt for a dynamic and automatic allocation of your portfolio in case you do not want to exercise an Active choice. This option is called the Auto choice.

In Auto choice, your money will be invested in asset classes E, C, and G in defined proportions based on your age. As an individual’s age increases, exposure to Equity and Corporate Debt are gradually reduced, and that in Government Securities is increased. Depending upon the risk appetite of the subscriber, there are three different options available within Auto Choice-Aggressive, Moderate and Conservative.

• Aggressive (LC-75) – Maximum Equity exposure is 75% up to the age of 35
• Moderate (LC-50) - Maximum Equity exposure is 50% up to the age of 35
• Conservative (LC - 25) – Maximum Equity exposure is 25% up to the age of 35

The flexibility of Scheme preference change

Scheme preference change is the option given to the Non-Government subscriber to design/redesign their own portfolio. It comprises change of Pension Fund Manager (PFMs), switching between Active choice and Auto choice, and in case of Active choice to decide the percentage of allocation in different asset classes.

A subscriber of the Non-Government sector can change their Scheme Preference through their associated POP-SP. It can also be done online through their log-in credentials of CRA.

In NPS, there are multiple PFMs, Investment Options (Auto or Active), and four Asset Classes – Equity, Debt, Government Securities, and Alternate Investment Funds. Subscriber has been given the flexibility to choose anyone out of available Pension Fund Managers (PFMs) and investment options separately for Tier I and Tier II account.

Selection of Pension Fund Manager

Selection of Pension Fund Manager is mandatory while filling up the registration form. All the PFMs under NPS are registered and regulated by PFRDA. They are mandated to invest Subscriber's contribution as per prescribed guidelines and regulations by PFRDA.

You can find the performance of respective PFMs on NPS Trust website. Returns of different schemes under NPS may help you while selecting the PFM. In NPS, you are allowed to change PFM once in a financial year.

NPS provides you two types of accounts

Tier I and Tier II. 

Tier I is a mandatory retirement account, whereas Tier II is a voluntary saving Account associated with your PRAN. Tier II offers greater flexibility in terms of withdrawal, unlike Tier I account, you can withdraw from your Tier II account at any point of time.

Below are few significant benefits of Tier II NPS Account:

• No additional annual maintenance Charge
• Saving for your day to day need (withdrawal at any point of time)
• Transfer fund to pension account ( Tier I) any time
• No minimum balance required
• No levy of exit load
• Separate Nomination facility available
• Option to select different Investment pattern from Tier I

Tax Benefit available to Individual in Tier I account:

• Any individual who is a Subscriber of NPS can claim tax benefit under Sec 80 CCD (1) within the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.
• Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)
• An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh is available under section 80C of the Income Tax Act. 1961.
• Tax Benefits under the Corporate Sector:
• Corporate Subscriber: Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.
• Corporates: Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

How to make the Investment to avail the Tax Benefit:

If you are an existing Subscriber, you can visit the eNPS website (https://enps.nsdl.com) for making an additional contribution to your Tier I account.

Please note: Tax benefits are applicable for investments in Tier I account only.

Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS:

• Tax benefits on partial withdrawal: Subscriber can partially withdraw from NPS tier I account before the age of 60 for specified purposes. According to Budget 2017, the amount withdrawn up to 25 percent of Subscriber contribution is exempt from tax.
• Tax benefit on Annuity purchase: Amount invested in the purchase of Annuity, is fully exempt from tax. However, the annuity income that you receive in the subsequent years will be subject to income tax.
• Tax benefit on lump sum withdrawal: After the Subscriber attains the age of 60, up to 40 percent of the total corpus withdrawn in a lump sum is exempt from tax.
• For example: If the total corpus at the age of 60 is 10 lakhs, then 40% of the total corpus ie 4 lakhs, you can withdraw without paying any tax. So, if you use 40% of the NPS corpus for lump sum withdrawal and the remaining 60% for annuity purchase at the time of retirement, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax.

Steps to Open eNPS (Registration using Aadhaar Offline e-KYC)

1. You must have an Aadhaar Registered Mobile Number.
2. You are requested to upload the Aadhaar Paperless Offline e-KYC ZIP file. If Zip File is not generated, Click Here to download from UIDAI website. Please note UIDAI website best support on Google Chrome 6.0+ | Internet Explorer 9.0+ | Safari 4.0+.
3. Enter the Share code of 4-characters created at the UIDAI website.
4. Demographic details (Name, Gender, Date of Birth, Mobile no., Address and Photo) will be fetched from Aadhaar Offline e-KYC Zip after Successful authentication and other mandatory details need to be filled up online.
5. You need to upload scanned copy of PAN card and Cancelled Cheque in *.jpeg/ *.jpg/ *.png /*.pdf (unsigned) format having file size between 4KB - 2MB.
6. You need to upload your scanned Signature in *.jpeg/ *.jpg/ *.png format having file size between 4KB - 5MB.
7. You will be routed to a payment gateway for making the payment towards your NPS account from Internet Banking.
8. Subscribers have an option to eSign or OTP Authenticate the registration form to CRA. For details please refer below under 'Process for eSign / OTP Authenticate' section.
9. Contributions are credited in PRANs on T+2 basis (subject to receipt of clear funds from Payment Gateway Service Provider).

Process for eSign / OTP Authentication

1. Subscribers have an option to eSign registration form
2. In case the subscriber is unable to eSign, then he can OTP Authenticate the form by entering the OTP received on Mobile Number and Email ID registered during Subscriber Registration in eNPS.
3. In addition, NRI subscribers should,
4. Select the Bank Account Status i.e., Non-Repatriable account or Repatriable account
5. Provide the NRE/NRO bank account details and upload a scanned copy of the passport
6. Select the preferred address for communication i.e., Overseas Address or Permanent Address (communication at overseas address would entail extra charges)

PRAN & PRAN kit

After registration of the Subscriber, a PRAN card is dispatched to the Subscriber which has Subscriber's name, Father's name, Photograph and Signature/thumb impression and Subscriber's date of birth. This card proves the completeness of information in the CRA system.

A PRAN Kit containing PRAN card, Subscriber details (referred as Subscriber Master List) and an information booklet is sent to the Subscriber's registered address. The Subscriber Master List includes all the information as provided by the Subscriber in the application and captured in CRA system.

Besides, ePRAN card is also available under subscriber's NPS login. For log-in to your account, you may visit to the "Login" section available on home page of NSDL eNPS website.

I-PIN & T-PIN

I-PIN:

I-PIN is a password to access your NPS account/mobile App. Through your NPS account log-in, you can view details of NPS account and initiate the various service requests.

T-PIN:

T PIN can be used to access your NPS account through the toll free helpline (1800 222080). The Bilingual 'Interactive Voice Response' (IVR) service helps you to access your account details and avail various services including request for Transaction Statement to your registered email ID. You can also speak to Customer Care Executive for any specific query. You can reset the T-PIN through the option available in IVR.

Processing of Subsequent Contribution:

• All existing Subscribers (Registered through both online and offline mode) can contribute to Tier I & Tier II accounts using 'eNPS'. 
• To contribute online, you need to have an active Tier I / Tier II account.
• Authenticate your PRAN using the OTP sent to your registered mobile number
• Pay through your Debit / Credit card or UPI or use the Internet Banking option.
• Contributions are credited in PRANs on a T+2 basis (subject to receipt of clear funds from Payment Gateway Service Provider)

Exit from NPS

As per PFRDA (Exits & Withdrawals under NPS) Regulations 2015, in following conditions Subscriber can exit from NPS:

Upon Superannuation - When a subscriber reaches the age of Superannuation/attaining 60 years of age, he or she will have to use at least 40% of accumulated pension corpus to purchase an annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum.

If the total accumulated pension corpus is less than or equal to Rs. 5 lakh, Subscriber can opt for 100% lumpsum withdrawal.

Pre-mature Exit - In case of pre-mature exit (exit before attaining the age of superannuation/attaining 60 years of age) from NPS, at least 80% of the accumulated pension corpus of the Subscriber has to be utilized for purchase of an Annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum. However, you can exit from NPS only after completion of 10 years.

If the total corpus is less than or equal to Rs. 2.5 lakh, Subscriber can opt for 100% lumpsum withdrawal.

Upon Death of Subscriber - The entire accumulated pension corpus (100%) would be paid to the nominee/legal heir of the subscriber.

Options at the time of superannuation

Subscriber can decide to remain invested in NPS (Up to 70 years) or can exit from NPS. Following options are available to NPS Subscribers:

• Subscriber can continue to contribute to NPS account beyond the age of 60 years/superannuation (Up to 70 years). This contribution beyond 60 is also eligible for exclusive tax benefits under NPS.
• Deferment (Annuity as well as Lump sum amount): Subscribers can defer Withdrawal and stay invested in NPS up to 70 years of age. Subscriber can defer only lump-sum Withdrawal, defer only Annuity or defer both lump sum as well as Annuity.
• Start your Pension: If the Subscriber does not wish to continue/defer the NPS account, he/she can exit from NPS. He/she can initiate exit request online and asper NPS exit guidelines start receiving pension.

Condition of Partial withdrawal

Following are the conditions of Conditional Withdrawal:

• Subscriber should be in NPS at least for 3 years
• The withdrawal amount will not exceed 25% of the contributions made by the Subscriber
• Withdrawal can happen maximum of three times during the entire tenure of subscription.
• Withdrawal is allowed only against the specified reasons, for example;
• Higher education of children
• Marriage of children
• For the purchase/construction of a residential house (in specified conditions)
• For treatment of Critical illnesses

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