National Pension System: Key features to know before opening an NPS account

PFRDA has recently increased the age limit of the Indian Citizens who can open NPS account.

By Ankit Agarwal

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National Pension System (NPS) has become one of the most popular retirement saving tools among the investing community. No wonder, NPS has crossed a milestone figure of over 1,43,90,544 subscribers and has more than Rs. 6.9 Lakh Crore worth of Asset Under Management (AUM) respectively.

Certain new NPS rules have been notified recently and have allowed the NPS subscriber to withdraw the entire corpus on maturity, subject to conditions. At present, a person can withdraw up to 60 percent of the amount accumulated in the account while the remaining 40 percent is used to purchase an annuity plan.

NPS works out to be a good substitute for EPF (Employee Provident Fund) which comes with an additional tax benefit. Following are the tax benefits that one can avail under National Pension System:

Up to Rs. 1,50,000 – u/s 80CCE (individual tax limit)
Up to Rs. 50,000 – u/s 80CCD(1B) (individual tax limit)
Up to 10% of Basic Salary – u/s 80CCD(2) (Through Employer contribution)

Before opening an NPS account, here are some features to keep note of:

Age Criteria: Under the new user-friendly rules, the PFRDA has also increased the age limit of the Indian Citizens who can apply for NPS. Senior citizens can now opt to enrol in this scheme and further create a retirement corpus for their old age while enjoying tax benefits that comes wrapped with it. All citizens between 18 to 70 years of age can join the scheme regardless of their gender or income-based criteria.

PRAN Account: To make NPS simple and convenient, individual subscribers are issued a unique identification number called Permanent Retirement Account Number (PRAN). This account can be opened with as low as Rs. 500 contribution individually. The minimum annual contribution required to be made is Rs.1000 only and there is no upper limit of contribution. PRAN is completely portable across jobs and geography and hence can be operated through online access from anywhere. As a subscriber, one can make contributions through various modes of payment ranging from Cheque, Cash, DD, or Fund Transfer through pan India.

Pension Fund Manager: The Pension Fund Managers that are appointed by the regulator prudentially manage subscriber funds through investments across various asset classes. They are critically and closely observed while their performance is constantly kept under the radar by the regulator.

Early Withdrawal: In order to make NPS user-friendly, the PFRDA introduced the option to prematurely withdraw funds due to certain exigencies that may arise at any time. Those who do not opt for early withdrawal and wait for their retirement, on reaching the retirement age of 60 years, the option to withdraw a lump sum and deferred pension can be availed by them.

Enhanced Investment Period: Under the National Pension System, one has the option to stay invested even after the period of investment comes to an end by extending the scheme tenure. The Enhanced Investment Period option, allows the subscriber to accumulate a higher corpus by staying invested for an additional period in the scheme.
On maturity, if one feels the need for an annuity is not there or if the market conditions are not conducive, one may defer the purchase of an annuity. The NPS subscribers may defer their annuity purchase for up to three years from the time they turn 60 years old or attain the age of superannuation.

National Pension System is a financially sound investment option available to the investors and now opens up a window of opportunity for the senior citizens as well. This provides a potential opportunity for all those who could have missed the opportunity to build a retirement corpus earlier.

(The author is Managing Director, Alankit Ltd.)