About National Pension Scheme (NPS)
The National Pension Scheme (NPS) is a contribution scheme launched by the Indian government, which offers a large variety of investment options to employees. The scheme helps individuals make decisions with regards to where they should invest their pension wealth. The National Pension Scheme’s main objective is to lower the liabilities of the Government of India with regards to total pension as well as to ensure that the country’s citizens would earn a stable income following their retirement along with helping them earn decent returns on their investment.
The NPS was launched on the 1st of January 2004 and was aimed at individuals newly employed with the central government, but not including ones in the armed forces. From the year 2009 however, the NPS was made open to every Indian citizen between the age of 18 and 60.
Unique Permanent Retirement Account Numbers (PRAN) are allocated to each subscriber under the NPS Scheme at the time of their joining. Subscribers are also allocated two accounts, which they can access at any time.
Types of NPS Accounts
NPS subscribers are issued with a Permanent Retirement Account Number (PRAN), which remains unchanged throughout the length of the scheme. NPS accounts are structured as Tier 1 NPS and Tier 2 based on the withdrawal norms.
- NPS- Tier 1 Account
It is the basic NPS account which does not allow premature withdrawals unless the member has completed 15 term years. These withdrawals are repayable advances and are allowed only in case of an emergency. However, Tier 1 account holders are eligible for partial withdrawals on of 25 years. Tier 1 accounts of government employees are subjected to investments in government and corporate bonds, while that of other citizens are invested in fixed deposits and liquid funds as well.
- NPS- Tier 2 Account
Tier 2 NPS accounts were launched by the government in the year 2009 and it offers greater flexibility than Tier 1 accounts. Here the account holders can withdraw their amount without any withdrawal charges or penalty. Tier 2 offers the investor an option to invest either in government bonds, fixed income instruments, or equity funds. It also allows transfer of money to Tier 1 accounts. Unlike Tier 1 accounts, NPS Tier 2 accounts does not have locking periods and are not exempted from tax under section 80 C of Income Tax Act.
- Swavalamban Yojna Account
Swavalamban Yojna was a financial inclusion scheme for the economically backward sections of the society. It was applicable to all employees in the unorganized sector of employment. For Swavalamban accounts, government made contributions of Rs.1000 for the first four years after enrollment. Swavalamban Yojna is replaced by Atal Pension Yojna.
How the new pension scheme compares to the National Pension Scheme
The main features differentiating the two schemes are:
|Features||National Pension Scheme||New Pension Scheme|
|Contribution by employees||An individual has to contribute 10% of the total of his Special Pay, Basic Pay and all other allowances that combine to make up his Provident Fund.||New Pension Scheme, all of the those are included along with Dearness Allowance|
|Contribution by the bank||The bank’s contribution will match the contribution of the employee, under the national pension scheme a separate account was created to collect the funds.||The new pension scheme, the combination of the contributions of both parties will be kept in one account.|
|Employee’s Additional Contribution||Contributions made under the National pension scheme could be stopped by employees by providing a notification one month in advance.||The new pension scheme allows for withdrawals as well as contributions at any given time.|
|Management of Funds||Managed by a P.F trust||PFRDA appoints six fund managers to manage the subscriber’s investments.|
|Scope of Regulation||No such body exists at the nationwide level.||The authorised regulatory body for the New Pension Scheme is the PFRDA.|
|Levy of Charges||No extra charges or fees were levied on subscribers.||Some fixed as well as variable charges may be levied under the New Pension Scheme.|
Features of NPS
The salient features of the National Pension Scheme are:
- The NPS is eligible for all Indian citizens between the ages of 18 to 65. And Subscribers are required to make a minimum contribution of Rs. 500 at the time of opening the account.
- The National Pension Scheme offers transparency to the subscriber and is a low cost investment option. Subscribers have the advantage of choosing their own pension fund schemes where they will be aware of how the investment is doing on a routine basis.
- The account matures when the subscriber reaches retirement.
- 60% of the corpus can with withdrawn on maturity and the remaining 40% is used to purchase annuities.
- Contributions made to the NPS are eligible for tax deductions under section 80C of the Income Tax Act.
- The NPS application process is extremely simple since the subscriber only has to open up an account at the respective nodal office and acquire a PRAN
- Since employees are allocated unique PRANs, they will be identified by the same PRAN all over the country, regardless of which part of India they are in.
- Subscribers can access details pertaining to the NPS online
- The NPS offers its subscribers a wide range of options to choose from, which include Pension Fund Managers, Funds to allocate their money to and Customer services providers among others.
- The NPS also give subscribers the flexibility to switch between fund managers and investment options
- Should the subscriber choose, he or she can change the contribution amount as well as the contribution frequency at will
- The NPS is a low cost investment option with extremely low fund management charges
While premature withdrawal from the NPS is not permitted, there are some circumstances where it can be availed. The rules for withdrawal differ based on the type of NPS account the subscriber holds.
Tier I accounts: Tier I accounts are mandatory for all subscribers to the NPS. These accounts have certain restrictions with regard to withdrawal of funds. Funds from a Tier I account cannot be withdrawn until the subscriber reaches retirement.
Tier II accounts: Tier II, on the other hand, is a voluntary account. Additionally, a Tier II account functions similar to a savings account and the subscriber is allowed to make withdrawals as per their discretion.
The PFRDA allows for partial withdrawal of funds under the following circumstances:
- Partial withdrawal of funds is only permitted to subscribers who have been contributing a percentage of their income towards the scheme for at least 3 consecutive years.
- Partial withdrawal is only permitted in cases of serious illnesses, higher education or marriage of the subscriber’s child and for the purchase of a place of residence.
- The PFRDA also provides a list of serious illnesses where partial withdrawal of NPS funds would be permitted. These medical conditions include kidney failure, cancer, paralysis, stroke, heart attack, heart surgery, and multiple sclerosis among many others.
- More recently, the PFRDA announced partial withdrawal for subscribers looking to start their own business or pursuing higher education for purposes of improving their employ-ability.
Benefits offered by NPS
The National Pension Scheme offers subscribers a number of benefits. These are as follows:
- The NPS is open to every Indian citizen and is entire voluntary
- The subscriber has the freedom to decide how much they are willing to contribute
- The application process is extremely convenient and easy
- It offers subscribers versatility by allowing them to choose where to invest their money in as well as who should manage their investments
- The subscriber can access his NPS account from anywhere in India at any time
- Since the PFRDA controls the NPS, there is strict adherence to standards. Evaluation of the performances of fund managers also take place on a routine basis.
Eligibility criteria for NPS
The NPS is open to all Indian citizens, regardless of whether they are residents or NRI’s. In order to subscribe to NPS, the following criteria must be met:
- The subscriber is required to be at least 18 years of age and not more than 60 years of age at the time of submitting his or her application to the POP
- The applicant must be of sound mind
- The applicant must be a first-time subscriber to the NPS
- The applicant must adhere to the KYC rules set by the Pension Fund Regulatory Development Authority (PFRDA)
The following individuals are not eligible to avail of the NPS
- Individuals who are not of sound mind
- Individuals who already hold accounts with NPS previously
- An undischarged insolvent
NPS subscribers can continue contributing to the corpus even after retirement
The National Pension System (NPS) is a long-term retirement savings scheme. An NPS subscriber, upon reaching the retirement age can withdraw 60% of the retirement corpus in a lump sum and the remaining is converted into pension. The retirement age is 60 years while the NPS entry age has been extended up to 65 years. If a subscriber wants to exit before the age of 60, then only 20% of the accumulated amount can be withdrawn while the remaining will be used to purchase an annuity product that offers regular income. NPS partial withdrawals are allowed only after 3 years of continued contribution. Only 25% of the corpus can be partially withdrawn and that too under certain conditions like the treatment of a life-threatening disease or higher education. Also, only 3 partial withdrawals are allowed for the entire NPS tenure. In the case of the demise of a subscriber, his or her nominee can withdraw 100% of the fund.
Most NPS subscribers look forward to withdrawing their retirement corpus after reaching 60 years of age but there are those who may want to bypass the annuity phase and resume investing in the scheme. Here are a few points that will help those who want to do the latter:
- Individuals aged 18 years can invest in the National Pension System until they reach the age of 60. However, if he or she chooses to contribute to the corpus even after retirement, it can be done till the age of 70 or superannuation.
- In order to resume contribution even after 60 years of age, he or she will have to submit a written request.
- The request has to be submitted at least 15 days before the individual reaches 60 years of age or superannuation.
- If an individual has missed the 15-day window, then a written request can be submitted to the National Pension System Trust, explaining the reason for delay in exercising the option. This has to be done within 185 days of the individual reaching 60 years of age or the age of superannuation.
- The Pension Fund Regulatory and Development Authority (PFRDA) increased the entry age for NPS up to 65 years in 2017. Individuals above 60 years but within 65 years can invest for a minimum of 3 years but no more than 70 years of age. In such a case, an early exit is considered only after minimum 3 years of continued contribution.
Thus, at the time of exit, an NPS subscriber aged 60 years can choose any of the following 4 options:
- Annuitise minimum 40% of the corpus and withdraw the rest in lump sum.
- Annuitise the entire corpus instead of just the mandatory 40%.
- Annuitise minimum 40% of the corpus, invest the remaining amount as a continued contribution to the NPS, and withdraw it at the age of 70.
- Defer annuity payment for 3 years from the exit age but no more than 70 years of age.
With the above-mentioned investment options, one is offered sufficient flexibility to make the most of the NPS corpus.
Age Limit of NPS
The PFRDA (Pension Fund Regulatory and Development Authority) recently increased the upper age limit for joining NPS (National Pension Scheme) to 65 from 60 years.
The pension regulatory board has approved the change and would shortly make the official announcement. NPS is currently available to people between 18 years and 60 years of age only. The scheme, however, allows contributions to the pension fund until the age of 70 years. The reason behind this government reform in NPS is to allow for easy portability of retirement funds and make NPS more desirable for customers. Government aims to open up NPS to sectors that don’t have employer pensions. Only around 15% to 16% employees in the country come under a pension scheme. This is because most of the workforce (85%) works in the informal/unorganized sector.
Even a 1% difference in scheme cost over 25 years to 30 years can make a difference of 15% to 16% by the end of the scheme because of compounding. Management charges for NPS fund is also the lowest (0.01%), when compared to other funds which charge 0.4% or 0.5%. Moreover, NPS provides the best returns in the industry.
Applying to the NPS
- The first step involves filing an application to obtain a Permanent Retirement Account Number (PRAN). This can be done by picking up an application form from any Point of Presence–Service Providers (POP-SP). A POP-SP is any financial institution that is authorized as a collection point for NPS subscribers. A PRAN can also be obtained by visiting the NSDL website.
- Once the form has been filled, it has to be submitted to the POP-SP along with KYC verification documents such as the Aadhaar and PAN.
- Following the KYC verification, the subscriber should make a minimum contribution of Rs.500.
- When the application is being processed, the applicant receives a receipt number to help track the status of their PRAN card.
- Once the application is reviewed and the KYC verification is complete, the PRAN Card is sent to the Central Recordkeeping Agency (CRA) that corresponds to the applicant’s registered address.
Subscribers can begin their contribution once they receive their PRAN card.
Swavalamban Pension Yojana/NPS
The Swavalamban pension Yojana scheme of the NPS - Lite was introduced with the main objective of helping people from financial and economically backward sections to secure their future. The NPS - Lite scheme is structurally based on servicing of groups as a whole as well as on low charges. Organizations called ‘Aggregators’ will take charge of people from these particular groups and will provide assistance with regards to registration, transfers and maintenance of pension contributions. Through these organizations, subscribers can join and make contributions provided they are between the ages of 18 and 60.
As per this scheme, the Indian government made a contribution of Rs 1,000 to each individual NPS account for the initial four years after the opening of the account in the year 2010-11. Currently the Atal Pension Yojana has replaced this scheme, where any subscriber who is less than 40 years becomes eligible to receive pension up to an amount of Rs 5,000 once he attains 60 years of age.
Features of Swavalamban Pension Yojana/NPS-Lite
- A PRAN Card is allocated to each subscriber under this scheme
- Contributions made monthly can be of any amount. Following the successful launch of the NPS, the government launched the New Pension Scheme to broaden the reach of the plan. Under the New Pension Scheme, government employees are required to make a 10% contribution to their Tier I account
- Tier I accounts are mandatory if a subscriber wishes to open a Tier II account
- Another account called the Swavalamban account is one where the Government makes an annual contribution of Rs.1,000 for a period of 4 years. This account was created specifically for employees in the unorganized sector from low economic backgrounds.
- As per guidelines set by the government, 85% of the funds are to be invested in debt securities, while 15% is to be invested in equity
- Fund managers include IDFC, SBI, Reliance, UTI, Kotak and ICICI. The subscriber has the option to choose three of them
- NPS Lite Aggregators will receive account statements with regards to all transactions that take place as well as the corpus market value. This statement will be distributed to the subscribers on an annual basis
The investment in the NPS depends on the investment portfolio of the subscriber. The investment in the scheme is split up into asset classes. They are:
- Class A: Class A investments are those that are made in alternative resources such as real estate and infrastructure.
- Class E: Class E investments refer to investments made in equity market instruments.
- Class C: Class C investments are those that are made in fixed income investment instruments. These investments do not include government securities.
- Class G: Class G investments are those that are made in government securities.
The allocation of these assets can be customized to suit the preference of the subscriber. The proportion of investment in these assets varies based on the type of investment portfolio the subscriber chooses. These accounts are the Active Choice and Auto Choice and they differ based on the amount of equity exposure the subscriber wants.
Auto Choice subscribers are those who require guidance on where they should allocate their assets. All subscribers to the NPS are allotted this type of account unless they specifically choose the Active Choice option. The exposure to equity and allocation of assets is largely dependent on the age of the subscriber. A subscriber between the ages of 18 to 35 years has 50% of his or her contribution invested in Class E, 30% in Class C, and 20% in Class G. This proportion of investment changes when the subscriber crosses age 35. Class E investments begin to decrease gradually as the subscriber ages and investment is Class E and Class G increase every year until the subscriber is 55 years old.
The Auto Choice option functions on the basis of a life cycle approach. The cap on equity exposure for a subscriber who chooses the auto choice option is 50%. A recent notification from the PFRDA announced the decision to increase equity exposure for Auto Life subscribers to 75%. Subscribers can either choose to be more aggressive with their equity investments or more conservative, with equity investments as low as 25%. The exposure to equity decreases by 15% when the subscriber turns 55 years old and continues to decrease by 15% as time passes.
Subscribers who select the Active Choice option do not require guidance on how their assets should be allocated. Subscribers can choose their fund manager and then decide on the proportion of their contribution to be invested in Class E, C, and G. At present, the cap on equity exposure for Active Choice subscribers is 50%, but the PFRDA proposed to increase the limit to 75% for subscribers under the age of 35.
Subscribers can shift from Active Choice to Auto Choice and vice versa. However, they can make only one shift every financial year.
Pension Fund Regulatory & Development Authority
The PFRDA is an independent regulatory body that was set up by the Indian government to regulate and oversee pension funds in India. It is the official regulator for the National Pension Scheme and regulates the workings of the system intermediaries such as the CRA, all pension fund managers, the NPS Trustee Bank etc
The PFRDA’s main objective is to encourage citizens to secure themselves financially by protecting the subscriber’s pension funds as well as their interests. The PFRA is also authorized to regulate any pension fund that does not fall under the purview of any other law, and ensures that the NPS is administered as per the rules and provisions laid down in the PFRDA Act.
Central Recordkeeping Agency (CRA)
The CRA or Central Recordkeeping Agency was set up for the NPS after the PFRDA and NSDL e-Governance Infrastructure Limited came to an agreement. The CRA is a key component of the National Pension System and is vital to its working. As per the guidelines of the NPS, every employee who has commenced working for the government is required to open up an account with the CRA. This account in turn will be assigned a unique PRAN for identification.
The most important duties and roles of the CRA are as follows:
- Providing services to all NPS subscribers with regards to administration and Recordkeeping
- Ensuring that each individual subscriber is issued with a unique PRAN
- Overseeing the issuance of PRANs to subscribers through a database
- Recording any transactions that take place in relation to each individual PRAN
- Providing an interface between NPS intermediaries and the PFRDA
- Keeping a check on contributions by subscribers as well as relaying any relevant instructions and information to the corresponding pension funds on a day to day basis.
- Providing subscribers with statements relating to their PRANs
- Allocating other functions as per PFRDA rules and regulations
The CRA is also in charge of providing connectivity to the PFRDA and other intermediaries such as the Trustee Banks via electronic means.
Which individual/entities can avail NPS Scheme?
Any Indian citizen aged between 18 years and 60 years at the time of submitting their application with the POP or POP-SP, is eligible to avail of the NPS. These individuals include any of the following:
Individuals employed with Central Government
Any individual newly employed with the Central Government as well as Central Autonomous Bodies is eligible to join the NPS provided they have commenced service on the 1st of January 2004 or any time after.
Individuals employed with State Government
Individuals employed with State Governments as well as State Autonomous Bodies, but who have commenced service following the notification date set by their respective State Governments, are eligible to join the NPS.
Corporates can opt to subscribe to the NPS and have the option to choose a Pension Fund Manager as per their requirements. This allows for flexible choice of investments and the additional benefit of deciding the amount of funds to be directed to the different asset classes on offer.
Applicants belonging to the unorganized Sector - Swavalamban Yojana
Any Indian citizen aged between 18 years and 60 years at the time of submitting their application, who is a part of the unorganized sector or is not a regular employee of the State or Central government or any of their undertakings, is eligible to open an NPS - Swavalamban account. However, the applicant must not already be covered under the following social security schemes:
- The Jammu and Kashmir Employees' Provident Fund Act, 1961
- The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955
- The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
- The Seamen's Provident Fund Act, 1966
- Employees' Provident Fund and miscellaneous Provisions Act, 1952
How to calculate pension received from NPS Scheme?
Whenever calculating the amount of pension an individual will receive from the NPS, it is important to note that the money that the subscriber has invested will not grow at a predetermined rate and that the NPS will not pay the pension amount to the subscriber directly.
The individual will have to take responsibility with regards investing on a regular basis in the scheme, which in turn will invest the money on the behalf of the individual. After the individual reaches the age of 60, he or she will be required to invest the money received in order to obtain a regular income after retirement.
Calculating the amount of pension a person receives can differ from individual to individual due to many factors, such as their risk profile, their choice of fund manager, the fund manager’s performance as well as the approach to investment of the individual’s money.
Individuals can make use of NPS calculator that can be found on many websites on the internet. These calculators base pension calculations on the following parameters:
- Contribution Amount
- Rate of Interest
- Number of Years
Interest rates offered by NPS
Due to the fact that the NPS invests subscriber’s money into a broad range of investment options, the NPS does not offer any particular interest rate. In general, the NPS Interest rate is anywhere between 12% - 14% interest, which is still on the higher side when taking other investment options into consideration.
Subscribers can avail the following tax benefits under NPS
Subscribers can avail the following NPS Tax Benefits:
- Tax deductions under Section 80CCE, which states that the total amount of deduction shall not be more than Rs 1 lakh under Section 80CCD and Section 80CCC
- Tax deductions under Section 80CCD (2) with regards to contributions made by the Central Government.
These tax benefits can only be availed by subscribers with Tier I accounts.
Taxation and Withdrawal
In addition to helping save for retirement, the NPS also has a number of tax benefits. NPS subscribers are eligible for tax deductions up to Rs.1.5 on their contribution under Section 80C of the Income Tax Act.
On maturity, 40% of the sum withdrawn is free from taxation. The remaining 60% is taxable. However, 40% of the sum accumulated in an NPS account is used to purchase annuities. NPS subscribers can also choose to withdraw the sum in their account before maturity under specific circumstances. In cases where the subscriber is below 60 years old, the subscriber can withdraw only 20% of the amount in their account. The remaining is invested in annuities. However, a partial withdrawal is only permitted after the subscriber has completed 10 years of contribution. In cases of emergencies, subscribers who have contributed for a minimum of 3 years to the scheme can withdraw up to 25% of the corpus.
Charges levied by POP’s & CRA
In the case of Tier I accounts, the employer is required to pay all fees and charges. However with regards to Tier II accounts, the subscriber is liable to pay for all transnational and activational charges. The following are the charges that falls under (Points of Presence )POP & CRA(Central Recordkeeping Agency )
The CRA levies the following fees and charges:
|PRA account opening fees - Rs 50|
|PRA account maintenance charges - Rs 190 per year|
|Transaction fees - Rs 4 per transaction|
The POP levies the following fees and charges:
|Registration fees at initiation - Rs 100|
|0.25% of the initial amount contributed by the subscriber for contribution upload as well as any transactions pertaining to contributions uploads thereafter|
|If any transactions are made wherein the subscriber has not made a contribution - Rs 20|
It is important to note that these fees are chargeable from the date of joining and any other charges and services taxes may be imbued in line with current tax laws.
Procedures to check balance in National Pension Scheme statement online
Subscribers can check their balances in Tier I and Tier II accounts by following the steps below:
- First open the main website of the CRA and NSDL via the following link https://cra-nsdl.com/CRA/
- Login as a subscriber to access the balance details under NPS
- Login by entering your user ID and password, which is the PRAN number allocated by the NSDL to each individual subscriber
- Following the log-in procedure, head to the ‘Views’ tab shown under that particular transaction statement
- This will provide the subscriber with details of where his money is invested as well as the fund managers appointed to manage his investments
- The subscriber can also check the aggregate amount that has been invested by both himself as well as the government, including any returns he might have accrued
- Tier II balance details can be accessed by heading to the ‘Account Details’ section, which is shown at the bottom
Generation of returns through NPS
Any returns that subscribers accrue through the NPS are usually borne after the NPS invests funds in a broad range of securities such as government securities, equity and corporate debt. Due to the good performance in both debt and equity markets, fund managers have attained good returns for subscribers in recent times.
Rules regarding withdrawals from NPS
Withdrawal from the NPS Scheme is allowed by the PFRDA only under the following conditions:
- If a minimum of 40% of the total accumulated pension of the subscriber is used for the purchase of annuities, then the remaining accumulated balance is given to the subscriber in the form of a lump sum
- In the event of the death of the subscriber, the total pension that the subscriber has accumulated will be paid to his or her nominee
- If a minimum of 80% of the total accumulated pension of the subscriber is used for purchasing annuities, then the remaining balance will be given out to the subscriber in the form of a lump sum.
Rules regarding withdrawal from NPS for both Tier I & II
The main rules with regards to withdrawals made from Tier I and Tier II accounts are:
- Withdrawal from Tier-I accounts: Should the subscriber complete service of 15 years, then he will be eligible to make withdrawals before maturity. Should he complete service of 25 years then he can make withdrawals totaling to 50% of his contribution. These withdrawals can be made in case of serious emergency or similar situations.
- Withdrawal from Tier-II accounts: No restrictions on withdrawals exist on Tier-II accounts. Subscribers have the freedom to make withdrawals whenever they so choose depending on their needs and requirements.
General premature withdrawal rules for both Tier I & II
There are a number of basic and generic rules regarding premature withdrawals from NPS Scheme as far as both Tier I and Tier II accounts are concerned:
- The subscriber is allowed to make partial withdrawals of a maximum of 25% of the contribution
- Only three premature withdrawals are allowed per subscriber
- In order to be eligible to make premature withdrawals, subscribers are required to have made contributions towards the NPS for at least 10 years
- In the event of any major emergency such as a major illness, then premature withdrawals can be allowed to meet treatment expenses
- Premature withdrawals can also be made to meet educational and marital expenses of the subscriber’s children
- Premature withdrawals can also be made by a subscribed should he intend to buy a house for the first time
How to exit prematurely from NPS?
NPS which was launched in January of 2004 is a government-sponsored pension scheme. Subscribers of the scheme can contribute to their pension accounts at regular intervals throughout their working period. They can make partial withdrawals from the pension corpus in a lump sum. The remaining sum should be used to purchase an annuity that provides regular income after their retirement. The following are the 3 conditions under which a National Pension System (NPS) subscriber can exit his or her account:
- On superannuation
- Upon the death of the subscriber
- Premature closure
Here are some important points to keep in mind when prematurely exiting NPS:
- Subscribers can prematurely close their NPS accounts only after 10 years of completion (from the date of opening the account).
- Minimum 80% of the pension amount has to be utilised for the purpose of purchasing an annuity with monthly pension payouts.
- The remaining 20% of the pension corpus can be withdrawn all at once in a lump sum.
- NPS subscribers can withdraw the pension corpus from their NPS account online upon receiving confirmation and approval from their Point of Presence Service Providers (POP-SPs).
- A pension corpus of less than Rs.1 lakh can be withdrawn as a lump sum amount.
- If the mandatory Tier I account is closed, then by default, the voluntary Tier II account will also be closed. The entire sum of money from the Tier II account can be withdrawn without any restrictions, unlike the Tier I account.
- Subscribers have the option to defer withdrawing the lump sum amount from their pension corpus until 70 years of age.
- If a subscriber discontinues the investment, then the NPS account will be frozen. To reactivate the account, the subscriber will have to make a minimum contribution and pay the penalty fee.
Documents required for premature closure of NPS
- To claim the pension corpus before reaching the retirement age, a subscriber must submit Form 302. Along with the form, the subscriber must furnish his or her NPS account details, personal details, annuity option, bank details, and withdrawal details. Form 302 has a provision for a nomination. If the subscriber passes away before the age of 60, then pension corpus will be paid to his or her nominee or legal heir.
- A photocopy of Permanent Retirement Account Number (PRAN) card.
- Pre-signed receipt of proceeds.
- Photocopies of address and identity proofs.
- A cancelled cheque.
The POP will verify the documents submitted by the subscriber and forward it to the National Securities Depository Limited (NSDL) and Central Record-keeping Agency (CRA). The CRA will register the claim request, process the application, and settle the account. The status of the application for premature closure of NPS can be checked online. Once the request has been processed, the annuity will be paid as mentioned in the application and the amount that has to be paid in a lump sum will be credited to the subscriber's bank account.
Procedures & documentations required for NPS withdrawals
Any subscriber looking to stop making contributions to the NPS is required to fill up, complete and submit a withdrawal application form to his or her respective Point of Presence.
- The subscriber is also required to submit the documents mentioned below with the withdrawal forms:
- Original PRAN card
- Identity Proof such as Passport, PAN Card, Driver’s License etc
- Address Proof such as Passport, Voters ID, Aadhar Card etc
- Bank certificates or canceled cheques that contain the name of the subscriber as well as his bank account number with IFSC code. This is required for transfer of funds either electronically or through a direct credit
- Following authentication of all documents, the Point of Presence will then send them to the CRA and NSDL
- The CRA will then ensure that the claim is registered and the required application forms and documents are submitted
- Following the receipt of the documents, the CRA will ensure that the application is processed and the account is settled
Filing Withdrawal Claims
The following is the procedure for filing a withdrawal claim for an NPS account.
- A withdrawal claim must be filed at the nodal office of the Central Recordkeeping Agency (CRA) or the National Pension Scheme Trust.
- The amount permitted for withdrawal is restricted to 25% of the funds accumulated in the subscriber’s account, excluding the contributions made by the employer.
- Withdrawal claims filed for constructing a home should be verified with proof that the property belongs to the subscriber or is held jointly with their spouse. Additionally, the withdrawal is only permitted of the subscriber does not own other property apart from their ancestral property.
- When making claims for withdrawal for treatments for medical illnesses for the subscriber, the request for withdrawal can be made by the subscriber’s family member.
- A subscriber is only permitted to make 3 withdrawals during the tenure of the NPS.
NPS Withdrawal Forms
The Indian government has separated all NPS withdrawal Forms into three different categories:
- Employees of the Government
- Subscribers belonging to corporates
- Swavalamban or unorganized sector subscribers
Withdrawal Forms pertaining to Government employees
- Form 101GS - Employees in government service can avail of this form should they choose to withdraw their accumulated pension following their retirement
- Form 102GP - Employees in government service can avail of this form should they choose to withdraw their accumulated pension before their time of retirement
- Form 103GD - Nominees or any legal heir of an employee with the government who is a part of the NPS, can avail of this form in order to claim the pension accumulated in the account of the subscriber.
Withdrawal Forms pertaining to Corporate Subscribers
- Form 301 - Corporate employees as well as other individuals and citizens who opt for withdrawal of their total accumulated pension following retirement can use this form
- Form 302 - Corporate employees as well as other individuals and citizens who opt for withdrawal of their total accumulated pension before retirement can use this form
- Form 303 - Nominees or any legal heir of a corporate employee can avail of this form in order to claim the pension accumulated in the account of the subscriber.
Withdrawal Forms pertaining to Swavalamban Subscribers
- Form 501 - Any subscriber who is a part of the Swavalamban sector can use this particular form to make withdrawals of their total accumulated pension following their retirement
- Form 502 - Any subscriber who is a part of the Swavalamban sector can use this form to make withdrawals of their total accumulated pension before their retirement
- Form 503 - Any nominee of a person who is a part of the Swavalamban sector can make use of this form to claim the total pension amount in the account of the subscriber
Death benefits provided under NPS
As per the guidelines of the National Pension Scheme, the nominee of the subscriber is allowed to withdraw, as a lump sum, the total pension amount that has been accumulated in the account of the subscriber in the unfortunate event of his or her death.
In order for a nominee to have the NPS Death Benefits, he or she is required to provide the following documents:
- The relevant and form pertaining to withdrawals should be completed and submitted depending on the subscriber’s employment status
- The PRAN Card in original
- A canceled cheque showing relevant details of the nominee such as his or her bank account number as well as IFSC Code
- The subscriber’s death certificate
- Any document or certificate that proves that the person claiming the amount is the legal nominee or heir of the subscriber
- The nominee’s ID proof as well as Proof of Address
National Pension Scheme (NPS) is a pension plan designed and regulated by the PFRDA. Citizens (including NRIs) between the age group of 18 years to 55 years are eligible for enrollment in the NPS scheme. While NPS is compulsory for government employees, it acts purely as a voluntary contribution system for others. NPS assures a fixed income for a definite period after retirement. PFRDA has appointed 7 fund managers to handle the investment portfolios, and they are as follows:
- HDFC Pension Management Company Limited
- ICICI Pension Fund Management Company Limited
- Kotak Mahindra Pension Fund Limited
- LIC Pension Fund Limited
- Reliance Capital Pension Fund Limited
- SBI Pension Funds Private Limited
- UTI Retirement Solutions Limited
How to contribute towards NPS Scheme?
To contribute towards NPS you need to register for PRAN. PRAN or Permanent Retirement Account Number is a 12 digit unique identification number issued to subscribers of NPS. PFRDA in collaboration with NSDL has set up a Central Bookkeeping Agency that stores all member related information in its records. NSDL is the authority responsible for issue of PRAN. The below points illustrate how to apply for a Permanent Retirement Account Number.
Documents required for issuing PRAN
- Your PAN card details are needed for issue of PRAN
- In case you don’t have a PAN card, your Aadhaar would suffice
- Your bank account details
- Address proof
- Photograph and scanned copies of signature
Online registration for NPS Scheme
- To register for NPS online, paste the following URL in your browser https://enps.nsdl.com/eNPS/OnlineSubscriberRegistration.html?appType=main
- Select new registration and in the section below choose Individual Subscriber
- Further under the columns listed, select your citizenship and choose from Aadhaar or PAN card to register with, and fill in the details
- Also, select the type of NPS account that you wish to open
- If you have selected PAN, then also select your bank where you maintain a savings or current account from the drop down menu. If your bank is not listed in the drop-down, you can apply for PRAN offline
- Click on continue and it will navigate to the Subscriber Registration page where you will be required to fill in the following information:
- Fill in your personal details in the first section
- After entering the details the system will generate an acknowledgment number, which will be required for later purpose
- In the Contact Details section provide the details as mentioned in your address proof
- Complete the fields in the other two sections—Bank Details and Scheme & Nomination Details
- In the section that follows, upload your photograph and scanned signature
- After paying the required minimum amount, you will be allotted a Permanent Retirement Account Number (PRAN)
After completion of the registration process you need to take a printout of the form, fix your photo and sign it. Send this form to the below mentioned address within 90 days from the date of online registration:
Central Recordkeeping Agency (eNPS),
NSDL e-Governance Infrastructure Limited,
1st Floor, Times Tower,
Kamala Mills Compound, Senapati Bapat Marg,
Lower Parel, Mumbai – 400 013
You will receive your PRAN card as a registered post on the same address that you have provided at the time of registration.
Checking status of PRAN
- To check your PRAN status you need to first access the following link https://cra-nsdl.com/CRA/pranCardStatusInput.do
- Click on the appropriate options provided for dispatch status and press submit
- The status of your PRAN will be displayed
- You can also check your PRAN status by calling 022 4090 4242 or by sending an email to eNPS@nsdl.co.in.
- You can also check your PRAN status offline by going to your nearest Point of Presence-Service Providers (POP-SP) and filling in the requisite form
NPS vs Atal Pension Yojna
|National Pension Scheme||Atal Pension Yojna|
|Minimum age for enrollment: 18 years Maximum age for enrollment: 60 years||Minimum age for enrollment: 18 years Maximum age for enrollment: 40 years|
|The minimum contribution for tier1 and tier2 NPS accounts are Rs.6000 p.a and Rs.2000 p.a respectively||The amount to be contributed depends purely on the individual's age at the time of opting for the plan|
|No limit on maximum contribution||The maximum limit is determined based on individuals age|
|There is no limit on maximum pension amount received||The maximum pension limit of Rs.5000|
|NPS subscribers can opt out of the scheme by withdrawing 20% of the accumulated amount as a lump sum and the remaining as a series of annual sums||Cannot opt of the scheme before attaining 60 years of age|
|Contributions up to Rs.1,50,000 are exempted under the Income Tax Act||Contributions are fully exempt under Section 80C and Section 80CCD of the Income Tax Act|
NPS vs PPF
|National Pension Scheme||Public Provident Fund|
|NPS offers tax benefits up to Rs.1.5 lakhs under section 80CCD (1) of the Income Tax Act and up to Rs.50,000 under section 80CCD(1B)||Offers tax benefits up to Rs.1.5 lakhs under section 80C of the Income Tax Act|
|Employer contributions are eligible for tax benefits||Not applicable to PPF funds|
|Allows partial withdrawals subject to stringent conditions||Very few restrictions are imposed on partial withdrawals|
|Does not provide loan facility||You can apply for loans against your accrued PPF balance|
|Provides you an option to invest in equities and government bonds||Provides only the announced interest rates for the fiscal year|
|Premature closure of account is possible||Cannot close the account before maturity, i.e. 15 years from the date of enrollment|
|NRIs can invest in NPS||As per the rules, NRIs cannot enroll for PPF scheme|
NPS vs EPF
|National Pension Scheme||Employee Provident Fund|
|NPS is a voluntary scheme that allows one to contribute any amount above Rs.6000 a year for Tier I and Rs.2000 a year for Tier II||EPF is compulsory for all employees in the organized sector with an income of above Rs.15,000 per month|
|You can select your fund manager from the organizations listed by PFRDA||All EPF accounts are managed by the EPFO|
|Voluntary contributions are made by subscribers at any chosen time period||12% of the employee contribution is matched with 12% of the employer contribution|
|Interest rate depends purely on your choice of fund manager and asset allocation||Interest rates are announced each year by the Finance Ministry in consultation with the EPF trustees|
NPS vs Mutual Funds
|National Pension Scheme||Mutual Funds|
|More liquid than EPF but less when compared to mutual funds||Offers high liquidity|
|Subscribers can choose only one fund manager out of the 8 options available||no such restrictions on mutual funds|
|Operational costs are less||Higher when compared to social security schemes|
|Maximum age at entry is 60 years||No upper age limit|
Charges Under NPS
Points of Presence (PoP)
Points of Presence are banks that are appointed for opening NPS accounts by the PFRDA. The following are the charges that an individual has to incur when opening an NPS account offline:
- Initial subscriber registration- Rs 200
- Initial contribution upload - 0.25% of the employee’s contribution
- Transactions following the opening of the account - 0.25% of the employee’s contribution
- Transactions unrelated to contributions – Rs 20
- eNPS for contributions that follow – 0.10% of the employee’s contribution
- Persistency – Rs 50
Central Recordkeeping Agency (CRA) Charges
The CRA is responsible for keeping a record of all NPS subscribers. Additionally, it is also responsible for customer service and administrative functions. The following are the charges levied by the CRA:
- PRA opening charges – Rs 40
- Annual cost of PRA maintenance –Rs 40
- Charge for each transaction – RS 3.75
In addition, the CRA also has other charges such as the Investment Management Fee, which is 0.01% of the contribution; as well as the Custodian Fee of 0.0032% and NPS Trust Fee of 0.01%.
Exiting from NPS
Subscribers can exit the NPS in the following cases: retirement, attaining the age of 60, death and premature exit. Exiting the scheme can be done by either submitting a form in person or online.
Government employees can submit a physical for at a Nodal Office that in turn submits the claim online. Non-Government employees can submit the form at PoP and can have an online filed by the PoP.
Exit can be made online by logging on and registering to the CRA website. Once registered, employees can request an exit withdrawal. The form would require the employee to select the type of exit. A claim ID will have to be generated at the Nodal Office in case the exit is premature.
Some of the top performing NPS schemes are the HDFC Pension Fund, ICICI Prudential Fund, Kotak Pension Fund and the LIC Pension Fund.
The National Pension System which is more commonly known as NPS, is a cost-effective retirement savings scheme that offers better growth options via long-term market-linked savings. The Pension Fund Regulatory and Development Authority (PFRDA) manages the National Pension System. An NPS subscriber can contribute to the retirement savings account and so can his or her employer as a co-contribution to add to the employee's welfare. When a subscriber contributes greatly and for a long period of time, the charges deducted are lower and accumulated pension corpus is higher.
The PFRDA introduced a new model called the NPS-Corporate Model to extend the NPS retirement savings scheme to include employees of corporates, Public Sector Undertakings (PSUs), and central and state public sector enterprises. This platform gives the employers an opportunity to co-contribute to the social security benefits of their employees. Here are some of the important features and benefits of the NPS-Corporate Model:
- Employers can introduce the NPS-Corporate Model along with the other retirement savings schemes like the Employees' Provident Fund.
- While the employers are eligible for tax benefits on the contributions made to the employees' NPS accounts as business expenses, the employees are eligible for tax benefits on contributions made by both themselves and the employers. A maximum of 10% of the employer's contribution is eligible for tax benefits under the business expense category. Employees can claim tax deductions up to Rs.1.5 lakh as per section 80CCE of the Income Tax Act.
- Employers don't have to waste money and time on record keeping, annuity, investment management, etc. in the case of NPS. Either the employers can select the points of presence and pension fund managers, and make investment choices for all employees on a corporate level or leave the choice to individual employees.
- Given the frequency of employment change among the corporate employees, the portability features of the NPS is best suited to them.
- NPS provides its subscribers an array of funds with flexible investment options like the Active and Auto choices. The employer or employee can choose any of the following pension funds - Pension fund to be incorporated by Birla Sun Life Insurance company limited, Kotak Mahindra Pension Fund Limited, HDFC Pension Fund Ltd., ICICI Prudential Pension Funds Management Company Limited, UTI Retirement Solutions Limited, LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited, and Reliance Capital Pension Fund Limited.
- Employers and employees can contribute to the Tier I account and either one of them can pay the charges. NPS subscribers can also opt for a voluntary savings feature called the Tier II account which offers flexible withdrawal and liquidity options but the tax benefits aren’t as high as the Tier I account. To activate the Tier II account, subscribers have to submit the Composite Subscriber Registration Form (CSRF). The transaction charges for Tier II accounts will have to be paid by the subscriber and not the employer. Tier II earnings can be transferred to the Tier I account but not the other way round.
- The NPS-Corporate Model allows 3 contribution options - equal contributions by the employee and employer, unequal contributions by the employee and employer, and contributions from either the employee or the employer. The minimum contribution to the Tier I account is Rs.500 per contribution, Rs.1,000 per year, and the minimum number of contributions is one per year. The minimum contribution to Tier II accounts is Rs.250 per contribution.
- If minimum contributions aren’t made, then the accounts will be frozen and the online features provided by the Central Record Keeping Agency (CRA) will be restricted.
- Up to 3 nominees can be appointed for the NPS Tier I account. If a subscriber passes away, then his or her nominee will receive 100% of the NPS pension corpus in a lump sum.
- NPS subscribers get periodic disclosure of their returns to help them better manage their funds.
- Employees can transfer their corpus to a new employer using the same Permanent Retirement Account Number (PRAN) in the case of a job change.
- Subscribers can register their grievance with the Centralised Grievance Management System (CGMS) via email, call centre, post or the CRA website.
- Those subscribers who are not well-versed on how to manage their investment, can opt for the auto or default choice, under which they can choose conservative, moderate, or aggressive life cycle fund.
- The subscribers are given the option to continue contributing to NPS even after retirement but only up to 70 years of age. Individuals can choose to defer the lump sum withdrawal and annuity payment for a maximum of 3 years after exit but only till 70 years of age.
- Upon reaching superannuation or exit, subscribers will get 40% of the corpus to purchase annuity and the remaining 60% in a lump sum withdrawal. If the total corpus is less than Rs.2 lakh then the subscriber can withdraw the whole amount in a lump sum at the time of exit.
- Premature exit in NPS (before completion of 3 years) results in 80% of the corpus being used to purchase annuity while the rest can be withdrawn as a lump sum. If the total accumulated corpus is less than Rs.1 lakh at the time of premature exit, then the subscriber can withdraw the entire amount in a lump sum.
- Partial withdrawals are allowed up to 3 times for the entire tenure, subject to completion of 3 years. For reasons such as house construction/purchase, higher education, treatment of life-threatening diseases, etc., subscribers can withdraw up to 25% of the corpus. Partial withdrawals are tax exempted.
Societies or trusts, proprietorship concerns, registered Limited Liability Partnerships (LLPs), state and central public sector enterprises, and entities registered under the Co-operative Acts and Companies Act can join the NPS-Corporate Model.
NDSL offers a myriad of helpline services to attend the concerns of NPS subscribers. You can reach out to NPS customer care cell on their toll free number or contact any of the NDSL branches for all information related to your NPS account. Given below are the details:
NPS Toll Free Number: 1800222080
NSDL e-Governance Infrastructure Limited 1st Floor, Times Tower, Kamala Mills Compound,
Senapati Bapat Marg,
Phone: 022 40904242
5th Floor, The Millenium,
Flat No. 5W, 235/2A,
Acharya Jagdish Chandra Bose Road,
Kolkata - 700 020,
Phone: 033 22814461/ 22901396
6A, 6th Floor, Kences Towers,
#1 Ramkrishna Street, North Usman Road,
Chennai - 600 017
Phone: 044 2814 3917/18
New Delhi Branch
409/410, Ashoka Estate Building,
4th floor, Barakhamba Road,
New Delhi - 110 001
Phone: 011 23705418/2335381
Unit No. 407, 4th floor,
3rd Eye One Commercial Complex Co-op. Soc. Ltd.,
Above Vijay Sales Stores C. G. Road,
Near Panchvati Circle,
Ahmedabad - 380 006.
Phone: 079 26461376
NPS is one of the most affordable pension solutions that comes with a multitude of features and benefits. Deposits under NPS Schemes accumulate higher interests due to the equity fraction linked with the investments. The scheme which was available only for government employees was opened to the general public in 2009. NPS which is currently in its developing stages is expected to offer greater benefits as it gains momentum
1. Following retirement, are employees engaged in government service eligible for leave encasement as per the guidelines of the NPS?
No. Leave encasement is not allowed as per the guidelines laid down by the CCS and does not count as a component of the benefits available to the employee after retirement.
2. What is the reason behind the compulsory utilization of a minimum of 40% of the accumulated pension funds to buy annuities after retirement?
The main reason behind this move is to ensure employees in government service will still obtain a regular and stable income every month following their retirement.
3. Which body is responsible for the calculation of interest with regards to the NPS?
The interest is calculated by the The Pension Accounting Office, who is the official body appointed for this particular task
4. Which agency or office will be responsible for contribution deductions In the event of the transfer of an employee during the course of the month?
The office that draws the salary of the subscriber for the maximum amount of time during the month will be responsible for the deduction of contribution towards the NPS
5. What are the KYC documents required to enroll for NPS through SBI?
The following documents are required to be submitted at the time of making the application:
- Subscriber registration form
- Photo ID proof
- Proof for Date of Birth
- Proof of residence
6. What are the different modes of payments available with SBI Pension Funds Pvt. Ltd.?
The following modes are accepted by SBI for NPS premium payments:
- Direct payment at an SBI Life branch
- Through standing order on credit card
- Online payments
- Electronic Clearing Service
- Payments through SBI Life’s mobile app
- Through National Automated Clearing House (NACH)
- Through POS terminals at authorized SBI Life branches
7. How to check the status of your NPS account in SBI?
Simply login to the SBI Life customer portal and fill in details such as Customer ID and NPS policy number to view your current status.
8. What are the minimum contribution amounts for Tier I and Tier II accounts?
The minimum contribution amount for Tier I accounts is Rs.500 per month and that for Tier II accounts is Rs.250 per month. Subscribers should also maintain a minimum balance of Rs.6000 for Tier I and Rs.2000 for Tier II at the end of the year.
9. How does SBI settle the NPS claims?
You need to submit the settlement form along with the essential documents for claim settlement at the branch where you maintain your NPS account. For details on claim settlements you can send an email to email@example.com. The final decision on claims will be based on the disclosures made in the proposal form by the subscriber.
10. Who provides annuity on withdrawal or maturity under NPS?
The insurance companies licensed by the IRDA and authorized by the PFRDA act as the annuity service providers to NPS subscribers.
11. Is NPS an easily accessible system of long term investments?
NPS is a cost effective, flexible and portable retirement savings scheme in which the wealth accumulated depends on the contributions made by the individual.
12. How many subscribers does NPS have?
The total number of NPS subscribers as on 30 Dec, 2016 is 1,02,76,250.
13. What are the features of NPS app?
Using the NPS app, you can raise a request for transaction statement for the particular fiscal year. You can also view the details of scheme wise units and update your contact information.
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