The Government of India has recently made three changes in the National Pension Scheme (NPS) including withdrawal norms. The details are as under:
- Partial withdrawal during the service
The Pension Fund Regulatory and Development Authority (PFRDA), with an objective to meet the subscriber’s sudden financial requirement enrolled under NPS, has liberalized norms for partial withdrawals which also include reduction of requirement of minimum years of being enrolled under NPS from 10 years to 3 years from the date of joining. Suitable amendments were made through “Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (First Amendment) Regulations, 2017 and the same has been notified on 10.08.2017.
- Increase in the joining age under NPS
With an objective to allow individuals (under NPS-All Citizen Model and Corporate Sector Model) who are in the age bracket between 60 years and 65 years to join NPS system. Suitable amendments were made through “Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (Second Amendment) Regulations, 2017 and the same has been notified on 06.10.2017.
- Exit in case of disability and incapacitation of the subscriber
With an objective of facilitating easy exit & withdrawal in case of disability and incapacitation of the subscriber covered under NPS, PFRDA has made suitable amendments through “Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (Third Amendment) Regulations, 2018 and the same has been notified on 02.02.2018.
- Benefits of NPS
Dual benefit of Low Cost and Power of compounding – The account maintenance costs under NPS are the lowest as compared to similar pension products available in India, like retirement plans offered by Insurance companies and mutual funds. While saving for a long-term goal such as retirement, the cost matters a lot. Over 35-40 years, the charges can shave off a significant amount from the corpus.
Till the retirement pension wealth accumulation grows over a period of time with a compounding effect. The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
A flexible investment option: Subscribers have control on the choice of investment made (Active or Auto Choice) and the Pension funds who manages the investments. Subscribers can switch from one Pension fund to another, one investment option to another, subject to certain regulatory restrictions.
Three Life Cycle funds are available under this Auto Choice:
- (i) LC75 – Aggressive Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 75% till age 35 and gradually reduces as per the age of the subscriber.
- (ii) LC50- Moderate Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 50% till age 35 and gradually reduces as per the age of the subscriber.
- (iii) LC 25- Conservative life cycle fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 25% till age 35 and gradually reduces as per the age of the subscriber.
The default auto choice if the subscriber is not choosing any of the above option is Moderate life Cycle Fund.
Tax benefit to employee:
Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution as under: -
(a) Employee’s own contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1.50 lacs under Sec 80 CCE.
(b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCD(2) over and above the limit of Rs. 1.50 lacs provided under Sec 80 CCE.
Tax benefit for self-employed:
Eligible for tax deduction up to 20 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.50 lacs under Sec 80 CCE.
Subscriber is allowed deduction in addition to the deduction allowed under Sec. 80CCD(1) for additional contribution in his NPS account subject to maximum investment of Rs. 50,000/- under sec. 80CCD 1(B)
Tax benefits would be applicable as per the Income Tax Act, 1961 as amended from time to time.
A safe retirement fund: Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority (PFRDA).
Low Cost - NPS is considered to be the world’s lowest cost pension scheme. Administrative charges and fund management fee are also lowest.
Simple - All applicant has to do is to open an account with any one of the POPs or through eNPS and get a Permanemt Retirement Account Number(PRAN)
Flexible - Applicant can choose his/her own investment option and Pension Fund or select Auto choice to get better returns.
Portable - Applicant can operate an account from anywhere in the country and can pay contributions through any of the POP-SPs irrespective of the POP-SP branch with whom the applicant is registered, even if he/she changes his/her city, job etc and also make contribution through eNPS. The account can be shifted to any other sector like Government Sector, Corporate Model in case the subscriber gets the employment
Prudentially Regulated – Transparent investment norms, regular monitoring and performance review of funds by NPS Trust.