The New Pension Scheme (NPS), a social security scheme, was launched by the central government in 2014. The New Pension Scheme is a contribution-based scheme which offers market-linked returns to pensioners. Initially aimed at central government employees only, NPS was subsequently extended by the Pension Fund Regulatory and Development Authority (PFRDA) to all citizens. Any employee belonging to private sector or self-employed can avail of the new pension scheme.
What is Contribution to NPS mean?
Given that the New Pension Scheme is a defined contribution plan and a marked-linked product, there are no guarantees on the investment made and protection against inflation. In this scheme, investors make a monthly contribution to their accounts which is then reinvested in various government securities or equities, depending on the risk profile of the investors. It is important to note that at the time of retirement, an investor may choose to withdraw a part of his or her scheme’s corpus as a lump sum. In such a scenario, the remaining balance is paid as pension annuity.Use NPS calculator to get an estimate of your scheme amount.
How is an NPS structured?
In terms of its structure, the new pension scheme is akin to unit-linked pension plan (ULPP) or unit-linked investment plan (ULIP). Investors can, therefore, choose from various types of fund options available in the scheme. The fund options have varying degree of risk in terms of exposure to debt, equity, government securities and fixed income instruments among others.
Both central and state government employees (employed after January 1, 2004) will not possess a general provident fund (GPF) account and instead have a new pension scheme account. In new pension schemes, a government employee contributes a part of his monthly salary towards the NPS account while the employer makes a similar contribution. The funds are then reinvested in various investment options.
Contribution: Tier I and Tier II NPS Accounts
Tier I: Government subscribers will have to contribute 10% of their basic salary and dearness allowance through Pension Accounting Office or Cheque Drawing and Disbursement Office. Non-government subscribers will have to make a minimum annual contribution of Rs.6,000. Contributions and returns in tier-I NPS account cannot be withdrawn.
Tier II: Government and non-government subscribers have to make a minimum of Rs.1,000 at the time of opening the account(Rs.250 per contribution) through the Pension Accounting Office or POP-SP. Subscribers have to ensure a minimum account balance of Rs.2000 at the end of the year. Contributions in tier-II NPS account can be withdrawn. It is important to note that no contributions will be received from the government in the tier-II account.
A Government employee may choose to exit from tier-I of NPS Scheme after he or she turns 60 years. In such a scenario, the employee should invest 40% of the fund amount to buy an annuity. Consequently, he or she will get the remaining balance. If a government employee wants to exit from the NPS scheme before turning 60, 80% of the fund amount will be mandatorily annuitized.
- Through what method can an NPS subscriber make contributions to his or her account?
- Is there a limit on the number of contributions an NPS subscriber can make?
- Can NPS subscribers reduce or increase the contribution amount over the years?
- Are there any notifications sent to the NPS subscriber when a contribution is made to the account?
- Does an NPS subscriber receive a statement for the NPS account?
- What happens to an NPS account if the minimum contribution of Rs.1,000 is not made per year to the Tier I account?
- How to unfreeze one's PRAN?
- Can an NPS subscriber make partial withdrawal from a Tier I account?
- How does National Pension Scheme work?
- When can a subscriber exit NPS?
- How much is paid to the subscriber upon exit from NPS?
Cash, Demand Draft, and cheque are the three ways by which an NPS subscriber can make contributions towards the scheme.
NPS contributions can be made at any frequency - yearly, half-yearly, quarterly, or monthly.
Yes, he or she has the flexibility to change the contribution amount every time a deposit is made.
Yes, upon credit of contribution amount, the account holder will receive a notification via SMS and email to the registered mobile number and email ID, respectively.
Yes, an annual account statement mentioning the unit holdings issued by the CRA is sent to the NPS subscriber's address.
The subscriber's PRAN will be frozen and the subscriber can't make any transactions.
Pay a penalty of Rs.100 and make a contribution of at least Rs.500 to unfreeze PRAN. POP charges will be levied.
Yes, up to 25% of the balance can be withdrawn from a Tier I account after 10 years from the date of opening the account. Partial withdrawal is allowed twice in 5-year intervals i.e. after the first withdrawal, the subscriber has to wait another 5 years before the next withdrawal.
The subscriber is allotted a unique number called the Permanent Retirement Account Number (PRAN). He or she can make contributions to the scheme through the employer or directly. Upon the subscriber's exit from the scheme or retirement, the accumulated funds is available in 2 parts - 60% in lump sum and 40% in annuity investment. The returns from annuity is made available to the subscriber as a monthly pension.
After 10 years from the date of opening the account or upon reaching 60 years of age, whichever is earlier.
- If the exit happens before the age of 60, then 20% is given as lump sum and the rest is invested in annuity. If the corpus is below Rs.1 lakh, then the full amount can be withdrawn.
- If the exit happens after retirement, then 60% is given as lump sum and the remaining is invested in annuity. If the corpus is below Rs.2 lakh, then the full amount can be withdrawn.
If the exit happens after retirement i.e. 60 years of age, then the subscriber can choose to postpone the withdrawal for 10 years. The corpus can be withdrawn in lump sum of 10 instalments before reaching the age of 70 years. When a subscriber opts for premature exit from NPS, then withdrawal has to happen immediately.
- Registration charge - Rs.200
- Contribution processing charge - 0.25% of the contribution amount, ranging from Rs.20 to Rs.25,000
- Account opening charge - Rs.40
- Account maintenance charge - Rs.95
- Asset management charge - 0.01%
Listed above are a few of the charges levied by the POP, pension fund manager, and CRA (NSDL). The POP charges will be deducted from the contribution sum.
NPS Other Pages
- HDFC National Pension Scheme
- ICICI Bank National Pension System
- NPS Features and Guidelines
- NPS Withdrawal Forms
- New Pension Scheme
- Axis Bank National Pension System
- Bank of Baroda National Pension System
- Bank of Maharashtra New Pension Scheme
- Central bank of India New Pension Scheme
- South Indian Bank New Pension Scheme
- Canara Bank New Pension System
- Corporation Bank New Pension Scheme
- Federal Bank New Pension Scheme
- IDBI New Pension Scheme