Donald Thompson
How do you imagine your retirement to be? Money-deprived and struggling to make ends meet or full of beaches, resorts, holidays, and lazy days? Most of us would choose the latter, but you need to work towards achieving it constructively to make it a reality.
So, before we move further, it is imperative for us to understand that most of us do not possess ample means to earn money actively in our post-retirement phase. It means that unless you have planned in advance, you would most likely be living off your savings, and it can deplete vigorously.
It inadvertently means that you will require someone to help you financially, which won’t bode well for your self-respect. Is there something that you can do better? The National Pension Scheme (NPS) can be your saviour.
This article discusses things you need to know about the National Pension Scheme.
What is the National Pension Scheme (NPS)?
NPS Scheme is a government-sponsored pension scheme launched initially in 2004 only for government employees. But it was opened for the public in 2009 through selected banks and is available for all Indian citizens aged between 18 and 65 years. It is managed by PFRDA (Pension Fund Regulatory and Development Authority) and allows you to create a corpus that can help you generate a regular old-age pension.
NPS is linked to your Permanent Retirement Account Number (PRAN), a unique 12-digit number allotted to every subscriber of this pension scheme. The amount you congregate throughout your contributing years can be paid as a lump sum or monthly instalments in the post-retirement phase. You can get an estimate of how your retirement savings and monthly pension would grow over the years with NPS Calculator. Thus, it will help you assure a period inflow even when you are retired.
Things to know about NPS Scheme
Here are some things to know about NPS before you begin your retirement investment journey:
- How to join?
You can join NPS by opening an account with POP (Point of Presence) entities. It comprises most public and private authorized bank branches that act as collection points.
- What are its types?
You can choose between Tier I and II account types. But you will require Type I to be eligible for Type II and is optional. Tier I entails a host of benefits for the investors, whereas Tier II is taxable but offers a seamless withdrawal facility.
- How can you find POPs near you?
You can visit the PFRDA website and look for POPs near you. Alternatively, you can click here.
- What about withdrawal?
As mentioned above, any amount invested in Tier II can be withdrawn without any terms and conditions. In contrast, you can only withdraw 60% of the Tier I corpus on maturity. The balance amount, if it exceeds ₹ 2 lakh, will be reinvested in an annuity or pension plan with a PFRDA-empaneled insurance company.
Alternatively, you can also opt for a partial withdrawal from your NPS Tier I account after ten years of subscription up to 25% of the amount contributed.
- Are there any tax benefits?
Section 80CCD (1B) of Chapter VIA allows contributions up to ₹ 50,000 as an additional deduction from your taxable income. It is over and beyond the ₹ 1.5 lakh deduction you can avail under Section 80CCD (1).
- Can I choose my investment allocation?
NPS allows you two modes to choose from – Active and Auto. Under the Active way, you can allocate up to 75% of your contributions towards equity until 35 years of age. The balance amount can be invested in a mix of corporate and government bonds. The Auto mode is an automated option where fund managers manage allocations actively.
Retirement planning is a crucial part of when you are in your prime. However, while it is great to plan for the present, it is equally important to have your heyday sorted too. NPS is a dedicated scheme that allows you to secure your future.
Thomas
