National Pension Scheme – Features and Benefits of NPS Account

Retirement is a time that is supposed to be easy going and relaxing. But is it possible without a monetary back-up to pay the bills and to fulfil your needs? No! So, you definitely need a pension scheme.

If you are looking for a relaxed life after retirement without the worry of income reduction, a pension scheme is definitely something you require. A pension plan limits the loss of income of individuals and allows tax benefits. NPS or National Pension System is one such pension plan introduced by the government. With NPS, a subscriber can hope to accumulate an income to maintain a smooth life post-retirement.

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What is the National Pension Scheme (NPS)?

National Pension Scheme (NPS) is a plan under which a subscriber can accumulate a corpus to serve them during retirement.

When it comes to retirement planning, the maximum amount that you invest during your working years will generate the maximum revenue at the time of maturity. Further, you also have the tax deductions that you can enjoy under sections 80C and 80CCD.

Functioning of National Pension Scheme (NPS) – How NPS Works?

NPS is a market-linked plan in which the account holder can contribute money until they are retired. Professional fund managers undertake the investment made in the scheme. The subscriber can contribute to the plan till their retirement age and once they are retired, 60% of the amount can be withdrawn as a lump sum, while the remaining 40% can be used as annuity for regular monthly income.

Key Features of the National Pension Scheme (NPS)

The structure of the NPS plan is such that it does not allow premature withdrawal of the fund. However, the scheme may allow partial withdrawal in case of any special circumstances.

The investor under the NPS scheme can avail the plan under two categories: Tier I account and Tier-II account.

• The Tier I account do not allow the facility of withdrawals prematurely and the amount can be withdrawn only when it matures and the exit conditions as per the scheme are carried on
• Tier-II account allows premature withdrawal and it comes into effect once the subscriber activates the Tier I account. The subscriber can withdraw money, if necessary, from this account

Another feature of NPS is that it allows the subscribers to choose fund managers from among 8 options of fund managers

The NPS subscriber also has the option of type of investment strategies to choose. They can choose between two options of active vs auto. Active option is the one where investors have more control over their assets and can decide how to allocate them. On the other hand, under auto option, the investors are mostly passive users

Under NPS, the subscriber receives a unique number called Permanent Retirement Account Number (PRAN), which is a lifetime number to ensure seamless portability of the scheme.

Benefits of National Pension Scheme (NPS)

NPS allows many National Pension Scheme benefits as mentioned below:

• Returns – A portion of the investment made under the scheme is assigned to equities, which allow higher rate of interest as compared to traditional financial plans at a rate that ranges between 9-12%.
• Tax Benefits – A major benefit of the NPS is the tax exemption available under Section 80C of the Income Tax Act.
• Flexibility – Another NPS account benefit is that the scheme allows the subscriber to avail a change of the fund manager if they are dissatisfied with the performance of the fund. You just need to fill a form online or offline and pay a charge to change the fund manager.
• Risk – There is a 75% maximum equity risk exposure under the scheme at the moment. For government employees above the age of 60 the upper limit of 50% is there. Once the investor turns 50, the equity component comes down by 2.5% per year and this reduces the risk under the plan due to market instability.

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To Sum Up

Retirement is a time that everyone wants to spend in a stress-free way. Hence, it is important to start planning for retirement from early on in life to make it smooth and worry-free. Accordingly, it is better to start investing in the NPS scheme to avail the benefits of the plan to make sure that your life is smooth after retirement.

Related Article by PayBima

• How to Apply for an NPS Account Online and Offline?
• NPS Tier 2 Account: Eligibility Criteria to Open an NPS Tier 2 Account Advantages and Disadvantages
• Annuity in National Pension Scheme(NPS) 
• Best NPS Fund Manager 2023 Tier 1

 

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