Pension plans provide financial security and stability during old age when people don’t have a regular source of income. The retirement plan ensures that people live with pride and without comprising on their standard of living during the advancing year.
The government of India established Pension Fund Regulatory and Development Authority (PFRDA) on 10th October 2003 to develop and regulate the pension sector in the country. 1st January 2004, the National Payment System (NPS) was launched under PFRDA by Government to provide retirement income to all citizens. Also, NPS reforms the pension institute and introduced the habit of saving for retirement among the citizens. Initially, NPS was introduced for the new government recruits and later NPS has been provided for all citizens of the country including the unorganised sectors voluntarily. Additionally, the central government launched a co-contributory pension scheme (Atal Pension Yojana) to encourage people from the unorganised sector to voluntarily save for their retirement.
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Contribution in NSP
For the central and state government employees contribution through their nodal office to NPS is mandatory and corporate would have the flexibility to decide investment choice. Govt. employees of central and state make a monthly 10% contribution from their salary.
Important features of NPS to help the subscriber
- The subscriber will be allotted a unique Permanent Retirement Account Number(PRAN).
- This unique account will remain the same for the rest of the subscriber’s life.
- This unique PRAN can be used from any location in India
- PRAN will provide two types of personal accounts.
- Tier I Account: This is a non-withdrawal account meant for saving for retirement.
- Tier II Account: This is simply a voluntary saving account. The subscriber is free to withdraw savings from this account but no tax benefit is available on this account.
Benefits of NPS
- It is a transparent and cost-effective system, where the subscriber will be able to know the value of the investment on day to day basis.
- It is simple to open an account with his/her nodal office and get a PRAN.
- It is portable, which means it is easily transferred from one place to another place via a unique number.
- It is regulated by PFRDA with transparent and regular monitoring.
Tax benefits and charges
The tax benefits for the contribution made in tier l account is Exempted Exempted Tax(EET) i.e. the amount contributed is entitled to a deduction from gross total income up to 1lakh. All the charges associated with tier I Account including annual PRAN maintenance charges are paid by subscribers.
Who and how to Join
All citizens of India between the age of 18 to 60 years on the date submission application of Point of Presence (POP) service provider. NPS is applicable for all new employees from starting scheme of central and state government (except armed forces).
The Pension Fund Regulatory and Development Authority (PFRDA) has authorized 58 institutions including public sector banks, private banks, private financial institutions and the Department of Posts as Point of Presence(POPs) for opening the National Payment System (NPS) account of the citizens.
Procedure to Join
Both central and state employees procedures same
- Submit from S1 to Drawing and Disbursing Officer (DDO) or equivalent offices.
- The DDO shall provide and certify the employment details.
- Subsequently, the DDO shall forward the form to the respective Pay and Accounts Office (PAO)/ District Treasury Office (DTO).
- The form should be submitted to Central Recordkeeping Agency (CRA) for registration.
Withdrawal
As per the guidelines of the Pension Fund Regulatory and Development Authority or Minister of Finance, the subscribers can withdraw from NPS on his/her retirement resignation or death. Around 80% of the amount has to be annuities and the remaining can be withdrawn by the subscriber on surrender. In case of the death of the subscriber, the entire amount will be handed over to the nominee.