National Pension System, shortly NPS started earlier in 2004 by name New Pension Scheme for government employees under a regulator called the Pension Fund Regularity and Development Authority (PFRDA). First, it opened for only government employees to provide pension after retirement. Then it has been open for individuals from all walks of life to participate and build a retirement nest egg. That’s why it’s called National Pension System as everyone can open an account and get a regular income after retirement.
What was the main motive to introduced NPS:
However, in India, we have already an organisation whose name is Employee’s Provident Fund Organisation. Also knew as EPFO but it only works for formal sectors employees, only covers a fraction of the workforce. NPS introduced to give the dominance of informal employment in India.
Extension of NPS: The NPS has been gradually growing in size and now manages 5.78 crore rupees of savings and 4.24 crores accounts in multiple savings schemes. Among these, about 3.02 crore accounts are part of the Atal Pension Yojana (APY), a government-backed scheme for workers in unorganised sectors that assures a fixed pension payout after retirement. The rest constitute voluntary savings from private sectors employees and self-employed individuals.
What changes made on NPS by PFRDA:
- Earlier it was said that if you are 65 years old then you can join NPS, but now it has been done till 70 years. This is being done because in 2017 when the age limit was changed from 60 years to 65 years, then 15,000 new NPS account was opened which were people above 60 years. So it is also being seen here that if the age limit is increased to 70 years, then more people can insist.
- PFRDA regulates the NPS that regulations allow members to withdraw instantly just 60% of their accumulated savings at the time of retirement. With the remaining 40%, it is mandatory to buy an annuity product like a scheme that provides a fixed monthly income to retirees till their death.
NOTE: Members who accumulate up to 2 lakh in their NPS account at the time of retirement are exempted from the mandatory annuity products and withdraw the full amount. So it depends on your savings but in April 2021 PFRDA chairman Supratim Bandyopadhyay said this limit revised up to 5lakh. Separately, the regulator decided that the annuity purchase stipulation for 40% of members retirement savings should be dropped altogether.
Why the regulator PFRDA made changes on NPS:
Falling interest rates and poor returns offered by annuity products has triggered complaints from some members and experts about the compulsory annuity clause.
[If someone opts for a lifetime annuity at retirement with a return of purchase price to the nominee once the person dies, the rates are varying between 5% to 5.5%. Since annuities are taxable, deducting the tax factoring in the inflation means annuities are yielding negative returns. Mr Bandyopadhyay pointed out.]
To avoid people into such an unattractive investment, the regulators have now proposed to give members a choice to retain 40% of their saving with the NPS fund managers even after retirement. Which allow them to get better returns and these savings can be paid out to members over 15 years through something like that the systematic withdrawal plan offered by the mutual plan.
Secured and guaranteed return─ These are some people who do not want to make any kind of risk. Suppose 10 lakh rupees are deposited in NPS after 60 years of age, then 4 lakh of these will go to some scheme. This is not needed from now on, you can completely get your money after 60 years of age. So, there are major changes that have been done in NPS and crores of people are associated with it.