National Pension Schemes, Benefits, Eligibility, How to apply

Hello everyone, and welcome to today’s article that will shed light on a lesser-known government scheme that offers financial benefits to Indian citizens. In this article, we will provide you with complete information about the National Pension Scheme (NPS). This social security initiative by the central government aims to provide retirement benefits to citizens across public, private, and unorganized sectors, excluding the armed forces.

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Introduction:

The National Pension Scheme (NPS) is a prominent initiative of the Government of India that encourages individuals to save for their retirement. It is a voluntary contribution scheme that is market-linked and managed by professional fund managers. NPS aims to inculcate a habit of saving for the future among Indian citizens.

Understanding the National Pension Scheme (NPS):

Objectives of NPS:

The primary objective of the National Pension Scheme is to provide retirement benefits to all Indian citizens. By contributing regularly to an NPS account during their employment, individuals secure a pension for their post-retirement life.

Types of NPS Accounts:

NPS offers two account types:

1. Tier I Account: This is the default account and is mandatory for long-term savings. At least 40% of the accumulated contributions in this account are utilized for a lifetime pension through the purchase of an annuity.
2. Tier II Account: This is an optional addition and provides more flexibility for withdrawals. Subscribers can partially withdraw their contributions, subject to certain conditions.

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Interest Rates and Benefits:

NPS is a market-linked product, and the interest rates depend on the performance of the underlying assets. The returns on NPS investments are not fixed and vary based on the asset classes chosen. The investment options include equity, government bonds, corporate bonds, and alternative assets.

Investment Flexibility in NPS:

Auto Select Option:

The Auto Select option is available as the default choice for plan-wise subscribers. Under this option, fund investments are automatically managed by a fund manager based on the investor’s age profile.

Active Option:

Under the Active Option, individuals have the freedom to allocate their contribution funds to different asset classes, including equities. The maximum cap for equity investments is 50%. Subscribers can also change their investment options and fund managers, subject to restrictions.

Partial Withdrawal Facility:

One of the benefits of the NPS scheme is the option for subscribers to make partial withdrawals from their Tier I account. This allows individuals to meet financial needs in emergencies. The conditions for partial withdrawal include a minimum contribution period of 10 years and a gap of at least 5 years between two consecutive withdrawals.

Returns on NPS Investments:

The returns on NPS investments vary based on the asset classes chosen. The approximate returns for both Tier I and Tier II accounts are as follows:

NPS Tier 1 Returns:

• Equity: 10.45% – 18.81%
• Government Bonds: 10.05% – 14.26%
• Corporate Bonds: 9.27% – 14.47%
• Alternative Assets: 3.98% – 16.73%

NPS Tier 2 Returns:

• Equity: 10.35% – 17.92%
• Government Bonds: 9.59% – 13.42%
• Corporate Bonds: 9.55% – 16.36%

How to Apply for an NPS Account:

To apply for an NPS account, follow these steps:

1. Go to the eNPS portal on the official National Pension System website.
2. Select your subscriber type as ‘Individual Subscribers’ or ‘Corporate Subscribers’.
3. Choose your suitable housing status, either ‘Citizen of India’ or ‘NRI’.
4. Opt for the Tier I account type or both accounts for long-term savings.
5. Enter your PAN details and select the appropriate bank or POP (Point of Presence) for KYC verification.
6. Upload scanned copies of your PAN card, canceled cheque, photograph, and signature.
7. Complete the payment process through net banking.
8. Once the payment is done, your Permanent Retirement Account Number (PRAN) will be generated.

How to Log in to Your National Pension Account:

To log in to your NPS account, follow these steps:

1. Obtain a 12-digit Permanent Retirement Account Number (PRAN).
2. Go to the eNPS login page: https://enps.nsdl.com/eNPS/NationalPensionSystem.html
3. If it’s your first time, click on the ‘Generate/Reset Password’ option and generate an OTP using your PRAN, Date of Birth, and Captcha.
4. Enter the OTP sent to your mobile number and validate your password.
5. Enter your PRAN, password, and captcha, and then select ‘Login’ to access your account.

National Pension Scheme Eligibility:

To be eligible for NPS, an individual must:

• Be an Indian citizen (resident or non-resident) or Non-Resident Indian (NRI).
• Be between 18 to 70 years of age.
• Follow Know Your Customer (KYC) norms as outlined in the application form.
• Be legally competent to execute the contract as per the Indian Contract Act.
• Note that our country means Overseas Citizens of India (OCI), Persons of Indian Origin (PIOs),& Hindu Undivided Families (HUFs) are not eligible for the National Pension scheme.

Calculating Monthly Pension and Tax Benefits:

The monthly pension received from NPS depends on factors like the chosen asset classes, investment tenure, and contribution amount. For more clarity on the pension amount and tax benefits, you can use the Cleartax NPS calculator.

Conclusion:

The National Pension Scheme (NPS) offers an excellent opportunity for Indians to secure their financial future during retirement. With its flexible investment options and potential for long-term growth, NPS is a viable retirement planning tool. However, it’s crucial to consider your risk profile and investment objectives before making any decisions.

FAQs:

1. Q: Is NPS available to all citizens of India?
   • A: Yes, NPS is available to all Indian citizens, including residents and NRIs.
2. Q: Can I withdraw my contributions before retirement?
   • A: Yes, partial withdrawals are allowed under certain conditions after a minimum contribution period of 10 years.
3. Q: Can I choose my investment options in NPS?
   • A: Yes, NPS offers both Auto Select and Active options for investment flexibility.
4. Q: Are OCI, PIOs, and HUFs eligible for NPS?
   • A: No, OCI, PIOs, and HUFs are not eligible to subscribe to NPS.
5. Q: How is the monthly pension calculated under NPS?
   • A: The monthly pension depends on your asset allocation, investment tenure, and contribution amount.