New Pension Scheme

National Pension Scheme is a defined contribution based scheme that is introduced by the government with the objective of extending the old age security coverage to all the citizens who opt out for this scheme. You will be given reasonable market-based returns under NPS over the long run. By investing in NPS you are bound to receive old age income.

NPS is based on a unique Permanent Retirement Account Number (PRAN) which will be allotted to you (subscriber) when you join this scheme. Exercising their executive powers, the Government of India adopted the NPS in respect of all the new entrants, with effect from 1st January 2004, to Central Government services, except the Armed Forces. Ever since a similar pension system has been notified by most of the State Governments for the new entrants. The Pension Fund Regulatory and Development Authority (PFRDA) has made NPS available for all the citizens of India on a voluntary basis, with effect from 1st May 2009.

You can join the NPS Scheme on your own or can use the one offered by your employer. If your employer is offering NPS, he will make an equal contribution from his side in the scheme. Also, you will be liable for additional tax benefit over employer’s contribution towards this scheme.

The scheme pools your savings in a pension fund and PFRDA regulated professional fund managers invest these funds according to the investment guidelines approved in the different portfolios including the government bonds, corporate debentures, bills and shares. The contributions grow and gradually increase over the years, depending on the investment made and the returns earned on it.

Under the NPS, you can open two accounts, Tier-I and Tier-II. You are mandatorily required to open a Tier-I account (primary account) to be eligible for opening the Tier-II account. If your employer is offering this scheme to you, the structure of the scheme will be Tier-I, where premature withdrawal will not be permitted. Also, if you choose Tier-II structure voluntarily, your employer will make no contribution to that account.

Tier-I: There was a lock-in period until the age of 60 years before the year 2011 for withdrawing from the NPS Tier-I account. Now, however, the PFRDA has decided that a subscriber is allowed for making premature withdrawals in the form of repayable advances, after completing 15 years of service. You can withdraw up to 50% of your contribution to the NPS after serving for at least 25 years of service. These withdrawals will be allowed to you in the event of critical illnesses, emergencies and other events that require financial help.

Tier-II: The withdrawals that are permitted to you are unlimited if you invest in the NPS Tier-II account. Here, your NPS account becomes just like a savings account with the only difference being the process of withdrawing money becomes tedious.

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