New Pension Scheme

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New Pension Plan is also known as the National Pension Scheme is a pension plan introduced by the government of India in order to secure the financial future of the individuals after retirement.  The National Pension Scheme is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA) and can be availed by any Indian citizen who falls between the age group of 18-60 years. 

What is the New Pension Scheme

 As one of the best tax saving investment option, National Pension Scheme provides financial security to the individual after retirement. The investment in NPS is made via debt and equity market. At the time of retirement, the subscribers can withdraw only 60% of the maturity fund, whereas the rest 40% of the maturity amount is invested towards the pension scheme. One can invest in National Pension Scheme through all types of insurance companies, banks and financial institution.

It is important for a country to have a well-defined pension arrangement enhancing strong social structure. Pension and retirement benefits provide sense of security to an individual and also acts as a source of investment. The New Pension Scheme is a contribution based pension scheme in which any individual can contribute towards their retirement fund. Earlier pension systems in the country used to be provided only by employers i.e. private and public employers. But new pension scheme introduced by the government is a flexible mode of retirement scheme in which any individual in the country can start investing in pension funds in India. This is easily the best investment scheme in the country to maintain standard of life after retirement.

New Pension Scheme is an effort of the government to reduce its pension liability and also helping general public to decide where to invest their money. It is a two tier contribution based investment structure in which an individual has full authority to decide where to invest his money. As already told it is a two tier structure consisting of tier I and tier II. The working of whole pension system is very simple. Tier I of the pension structure does not allow you premature withdrawal while tier II of the structure can be used for any withdrawal before maturity. The minimum contribution for any individual is RS 500 per month or RS 6000 annually.

Features of the New Pension Scheme

  • The investment in the new pension scheme is made via debt and equity market.
  • As compared to the tax-saving investment instrument, the returns offered by NPS are much higher.
  • NPS offers 8%-10% yearly returns.
  • One can claim a maximum deduction of up to Rs. 1.5 lakh in NPS under section 80C of the Income Tax Act.
  • For tier-I account, the subscribers are required to make a yearly contribution of Rs.6000 and Rs. 500 as a one-time contribution. For tier-II account, the subscribers are required to make a yearly contribution of Rs.2000 and Rs.250 one-time contribution.
  • At the time of retirement, the subscribers can withdraw only 60% of the maturity fund, whereas the rest 40% of the maturity amount is invested towards the pension scheme. An individual can open an NPS account through online or offline process.

Benefits of New Pension Scheme

  • Cost effective: The cost of investing in new pension scheme is almost negligible whereas the cost of investing in alternate funds like mutual funds is very high. You incur entry and exit loads upon investment in mutual fund schemes. The fund management cost is very low, which will enhance the returns.
  • Freedom to entry: New pension scheme allows anyone from the age of 18 till 55 years to enter and invest into this pension scheme. Earlier in the old pension schemes, only central government employees had the option to invest in pension scheme but new pension scheme provide this facility to anyone contributing to prosperity of people of India.
  • Investment opportunities: The new pension scheme has a unique feature that provides every opportunity to an individual to invest in variety of funds and yielding maximum returns from their investments. Returns from investments in turn help an individual to reach and attain their investment objectives and future goals. An individual can also rebalance their accumulated fund free of cost and can be invested in any fund.
  • Tax Implications: There is no tax implication for an individual if they chose to invest in new pension scheme. An individual is provided tax benefit over and above RS 1 lakh under section 80C of income tax
  • Security to the Nominee: In case of death of the contributor, the nominee to the beneficiary receives the accumulated amount in lump sum. So, it provides sense of security to the nominee as well.