NPS (National Pension System)
NPS or New Pension Scheme is a retirement product launched by Government of India. It is managed by PFRDA (Pension Fund Regulatory and Development Authority). This product helps you to create retirement corpus.
NPS was launched on 1st Jan 2004 initially it was for the central Govt Employees (Except Armed Forces ).Later NPS was made available for ll the citizens of the country with effect from 1st May 2009
Any citizen of India (whether resident or NRI) can invest in this scheme. The age of the subscriber must be within 18-60 years of age. However, an individual of unsound mind or existing members of NPS are not allowed to open new account. Therefore, an individual can open only ONE NPS account.
When you Open NPS Account you have to choose the following
1. Pension fund Manager
2. Type of NPS Account
3. Investment Choices
lets understand all the above in Detail
1.Pension Fund managers :
1. HDFC Pension Fund management Co. Ltd.
2. ICICI Prudential Pension Fund Management Co.Ltd.
3. Kotak Mahindra Pension Fund Management Co.Ltd
4. LIC Pension Fund Ltd.
5. SBI Pension Fund Pvt Ltd
6. UTI Retirement Solutions Ltd.p
7. Aditya Birla Sun Life Pension Management Ltd
Note : You can change the fund Manager
2.NPS Account :
1. Tier 1 Account : This is a Retirement Account Subscribers can withdraw from this account only upon meeting the conditions prescribed under NPS
2. Tier 2 Account : This is a voluntary savings account wherein the Subscriber can invest at a low cost, with an aim to provide liquidity. The Subscriber is free to withdraw the savings from this account whenever they wish.
Note : To Open Tier 2 Account Subscriber should have Tier 1 Account if Tier 1 Account is Closed then Tier 2 will be automatically Closed
3. Investment Choices :
1. Active Choice : If you want complete control of your investments, this is a perfect choice for you. Here you can decide the distribution of your money basis on your Expectations.
There are 4 types of Asset Class in NPS
Asset Class E (Equity) :- Investments in Equity Market (High Risk:High Return)
Asset Class C (Corporate Bonds) :-Investment in Fixed Income Instruments (Moderate Risk : Moderate Return )
Asset Class G (Government Securities):Investment in Government Securities . (Low Risk:Low Return)
Asset Class A (Alternate Assets ):Investments in instruments like CMBS, MBS, REITS, AIFs, etc. ( Very High Risk : Very High Return )
Note : While you have the freedom to decide your investments under NPS, there are certain boundary conditions. These are as below:
• You can invest a maximum of 75% of your pension wealth in equity (Asset class E).
• You can invest a maximum of 5% of your pension wealth in Alternate assets (Asset class A).
• You can invest your entire pension wealth in C or G asset classes.
• You have the option to change your investment choice twice a year.
2. Auto Choice : In this Choice NPS gives you option to choose the 3 life cycle options
• LC 75 ( Agressive )
• LC 50 ( Moderate )
• LC 25 (Conservative)
Based on the Option the money is invested in various Asset classes
The Distribution of Money is mentioned Below
1. Reallocation among the asset classes shall take place on your date of birth every year
2. You may change your preference only twice, at any time during the financial year
Options Availability after attain Age 60
There are three options available for subscribers once they reach the age of 60 years.
1. Continuation of NPS account:
The subscriber can continue to contribute to NPS account beyond the age of 60 years/superannuation (Up to 70 years). This contribution beyond 60 is also eligible for exclusive tax benefits under NPS.
2. Deferment (Annuity as well as Lump sum amount):
The subscriber can defer Withdrawal and stay invested in NPS up to 70 years of age. The subscriber can defer only lump-sum Withdrawal, defer the only Annuity or defer both lump sum as well as Annuity.
3. Start your Pension:
If the Subscriber does not wish to continue/defer NPS account, he/she can exit from NPS. He/she can initiate exit requests online and asper NPS exit guidelines start receiving a pension.
NPS EXIT & Withdrawal – TIER 1
After attaining the age of 60 years
Let us now discuss about the exit options available under the NPS once the subscriber reach the age of 60 years.
When a subscriber reaches the age of Superannuation/attaining 60 years of age, he or she will have to use at least 40% of accumulated pension corpus to purchase an annuity that would provide a regular monthly pension from the PFRDA tied up and IRDA approved Life Insurance companies to pay the pension in Mode of Annuity The remaining funds (60%) can be withdrawn as lump sum.
Facility of phased Withdrawal is available for NPS Subscribers. Subscriber can opt for withdrawal of lump-sum amount (60%) in a phased manner (up to 10 instalments) over the period from 60 years (or any other retirement age as prescribed by the employer) to 70 years. However, Subscriber has to buy Annuity prior to Phased Withdrawal (from the mandatory 40%).
Note : However, if the total accumulated pension corpus is less than or equal to Rs. 2 lakh, the Subscriber can opt for 100% lump sum withdrawal.
Before attaining the age of 60 years
If you wish to withdraw before the superannuation age of 60 years, then such exit option is called partial withdrawal. Hence, you are not allowed to withdraw fully. But to certain extent you can withdraw partially.
Hence, in this option you are allowed to partially withdraw and continue your NPS account.
You are allowed to withdraw 25% of the accumulated corpus at any time (but excluding contributions made by the employer), as on the date of application of withdrawal. Few points to note are as below.
• The subscriber must be in the National Pension System for at least 3 years.
• The subscriber permitted to withdraw accumulations not exceeding 25% of the contributions made by him and standing to his credit in his individual pension account, as on the date of the application for withdrawal.
• The subscriber allowed to withdraw only a maximum of 3 times during entire
tenure of subscription.
• You must submit this withdrawal request in the specified form along with necessary documents to the central record keeping agency or the National Pension System Trust, as may be specified, for processing of such withdrawal claim.
• If subscriber suffering from diseases, then a family member can submit the application.
Note-As per Budget 2017, the subscriber whose NPS account is at least 10 years old will be eligible for withdrawing 25% of his/her contributions (without accrued income earned thereon). This 25% withdrawal will be part of total 40% withdrawal (which is tax-free).
2. Purpose of withdrawal
You are not allowed to withdraw the NPS corpus as per your wish. There are certain purposes set by PFRDA. They are as below.
• For higher education of your children including a legally adopted child (or) for self.
• Individual NPS subscribers who wish to set up a new business or acquire a ne business will also be allowed to make partial withdrawals from his contributions.
• For the marriage of your children, including a legally adopted child
• You can make a partial withdrawal for the purchase or construction of a residential house or flat in your name or in a joint name of your spouse. In case, you already own a residential house or flat (either individually or in the joint name), other than an ancestral property, no withdrawal under these regulations shall be permitted.
• If you /your spouse, children, including legally adopted child or dependent parents suffer from any specified illness, a partial withdrawal request can be submitted by you or any of your family members. (Specified illness – which shall comprise of hospitalisation and treatment in respect of the following disease) :
2. Kidney Failure (End Stage Renal Failure);
3. Primary Pulmonary Arterial Hypertension;
4. Multiple Sclerosis;
5. Major Organ Transplant;
6. Coronary Artery Bypass Graft;
7. Aorta Graft Surgery;
8. Heart Valve Surgery;
14.An accident of serious/ life-threatening nature.
15.Any other critical illness of a life-threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time.
16.Such advance withdrawal will not attract any taxation. Hence, there is no tax liability for such advance withdrawal.
Partial withdrawal request can be initiated online by Subscriber. Alternatively, Subscriber can submit physical partial withdrawal form (601-PW) along with documents to POP, based on which POP can initiate online request.. However, POP is required to ‘Authorize’ the Withdrawal request in CRA system.
As of now, the eligible Subscribers need to submit their application for a partial withdrawal to the respective nodal officers/POPs along with the supporting documents to substantiate the reasons for their request for partial withdrawals.
In order to ease the process of partial withdrawal and make it simple, online and paperless in the interest of Subscribers, it has now been decided to allow the Subscribers to allow partial withdrawal based on ’self-declaration’ and thereby doing away with the submission of supporting documents to substantiate the reasons for partial withdrawal.
To further expedite the process and to ensure timely payment of partially withdrawn amount into the Subscribers’ bank account, the partial withdrawal requests received online shall be directly processed in Central Record Keeping Agency (CRA) system thereby doing away with the authorisation of the request at the level of nodal office/POP.
This Liberalised process is however strengthened by effective due diligence with technology enabled INSTANT BANK ACCOUNT VERIFICATION through penny drop to identify the beneficiary and the Subscriber’s bank account. In order to ensure payment of
amount into correct bank account number and rightful beneficiary, CRAs shall be carrying out ’Instant Bank Account Verification’ through penny drop and the cost of the same shall be borne by the Subscribers.
In case of pre-mature exit (exit before attaining the age of superannuation/attaining 60 years of age) from NPS, at least 80% of the accumulated pension corpus of the Subscriber has to be utilized for purchase of an Annuity that would provide a regularmonthly pension.The remaining funds can be withdrawn as lump sum.However, you can exit from NPS only after completion of 10 years. If the total corpus is less than or equal to Rs. 1 lakh, Subscriber can opt for 100% lump-sum withdrawal.