The National Pension Scheme, backed by the Government of India, offers financial security to individuals during their retirement years. This plan is meant for private, public, & unorganised sector employees, except for armed forces staff. It is a type of Retirement Plan that offers flexible investment options, tax benefits, & market-linked returns. Individuals can undertake retirement planning by investing funds at regular intervals of time during their careers to build the corpus for a secure financial future.
The individual who invests in the National Pension Scheme is known as a “Subscriber”. Every subscriber has to get an account opened with the Central Recordkeeping Agency (CRA), further getting the identification completed with the help of a unique Permanent Retirement Account Number (PRAN). NPS is a flexible, hassle-free & safe investment plan that allows one to secure a financial future in a planned manner.
Reasons to Choose NPS for Retirement Planning
Provided are the reasons to choose an NPS as a key component for Retirement Planning:
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Tax Advantages
The tax benefits associated with NPS are as mentioned:
| Category | Applicable Income Tax Sections | Tax Advantages |
| Self-Employed Individuals | 80CCD(1) | The contribution made towards Tier-I investment type is eligible for tax deduction up to a maximum limit of INR 1.5 lakhs u/s 80C. |
| All Subscribers | 80CCD(1B) | In addition to the deduction availed under Sec 80CCD(1), the subscribers can avail INR 50,000 as a tax deduction on the contributions made towards Tier-I. |
| Government Sector Employees | 80CCD(2) | The contribution made towards Tier-I investment type is eligible for tax deduction up to 14% in addition to the deductions u/s 80C. |
| Private Sector employees | 80CCD(2) | The contribution made towards Tier-I investment type is eligible for tax deduction up to 10% in addition to the deductions u/s 80C. |
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Control Over Investments
This plan offers you an option to choose the way to invest the contributions, such as bonds, equity, government securities, investment funds, etc. The investment portfolio can be chosen depending on the financial objectives & risk acceptance level, which ensures that risk can be managed & returns can be managed in an efficient manner.
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Centrally Regulated & Secure
Being backed by a government institution, i.e. the Pension Fund Regulatory & Development Authority (PFRDA), provides a sense of stability, growth & safety of returns on investments. It helps the investors manage their funds with transparency, reliability, & security, thus offering mental peace.
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Low-Cost Plan
The fees charged are quite low, ranging between 0.03% to 0.09%, which leaves more scope for retirement funds to be accumulated, thus helping in wealth creation.
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Flexibility & Portability
It allows you to partially withdraw your funds during emergency situations, hence providing flexibility. It provided portability by allowing you to manage your account from anywhere in India, making it easy to access whenever & wherever.
Types of NPS Accounts
There are two types of accounts maintained under the NPS Scheme, namely Tier-I & Tier-II:
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Tier-I Account
Features:
- It is an individual account for a pension.
- Withdrawal of funds is regulated under “Exit & Withdrawal & Regulations”.
- The minimum contribution amount required to open an NPS account is INR 600.
- The minimum contribution amount on a per annum basis is INR 1000.
- AMC charges are applicable separately.
- Tier-II Account
Features:
- It is an optional account with a Tier-I account.
- There are no restrictions on the withdrawal of funds.
- The minimum contribution amount required to open an NPS account is INR 250.
- There is no restriction on the minimum contribution amount per year.
- AMC charges are not applicable separately.
- Switching from Tier II to Tier I is allowed at any point in time.
Annuity Options in NPS
While implementing a retirement plan, it is important to choose an appropriate annuity plan, which will help determine the amount of pension that will be received post-retirement. Let us understand its different types to have a better clarity:
Life Annuity
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Description
It offers a regular source of income throughout the subscriber’s life.
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Benefits
It provides a sense of financial security to the family members of the subscriber in the unfortunate event of their demise.
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Consideration
The payout amount will be received until the subscriber is alive.
Annuity with Return of Purchase Price
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Description
It offers a regular source of income throughout the subscriber’s life. Additionally, it repays the buying price to the subscriber’s beneficiaries in case of the subscriber’s death.
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Benefits
It offers a combined benefit of income with trust that the amount invested earlier will be received back by the members of the family themselves.
Joint Life Annuity
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Description
This plan includes both the subscriber & their spouse, providing a pension amount to the spouse in case of the subscriber’s death.
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Benefits
It offers financial security to the family members by providing a regular source of income to the subscriber’s spouse.
Annuity with Inflation Protection
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Description
It helps adjust the pension amount in accordance with the inflation rate, thereby maintaining the buying power unchanged.
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Benefits
It helps protect the pension income from the inflation factor, causing the cost of living to rise over a period of time.
Annuity with Guaranteed Period
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Description
It offers annuity with a guaranteed minimum payout period, even in case the subscriber dies immediately post-retirement.
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Benefits
This plan makes sure that the beneficiaries of the subscriber get the pension amount during the guaranteed period, further enhancing the security.
Annuity with Multiple Life Cover
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Description
It provides coverage to multiple family members & offers all of them annuity benefits.
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Benefits
By providing coverage to all family members, it not only makes them feel financially secure but also provides coverage to his/ her family members.
Conclusion
The National Pension Scheme is a simple-to-understand &, flexible, & portable scheme that helps boost income & save taxes. It is a low-cost plan which allows the building of an investment corpus for retirement along with taxation benefits. It provides a stable & secure financial future, hence helping individuals in retirement planning. This scheme is thus one of the wisest choices for an individual who is looking for low-cost, flexible, & reliable retirement options.
