The National Pension System (NPS) - Re-modified!!

A retirement plan available to the citizens of Indian starting from the year 2009, but I guess not many people have much knowledge about and how it helps in individual’s retirement planning.

Let see what this is all about!!!

What is the National Pension System?

The National Pension scheme is to promote income security at the time of retirement to citizens of India which earlier was not given much of importance. So, NPS a step forward by the Central Government is basically a voluntary contribution scheme introduced through Pension regulation authority named as Pension Fund Regulatory and Development Authority (PFRDA).

Earlier, the pension scheme was based on defined benefits. Now the same has been transitioned to contribution based, and Central government employees are already covered under the new scheme. The same option is also available to all the salaried employees who are not government employees to opt for the contribution based pension system. The basic aim here for the government to provide a better income security by providing bigger corpus to the working class at the time of retirement.

Going further, under the scheme any individual can open a personal retirement account with the government and can invest throughout his work life to save a pension amount which will help him meet his financial requirements. Under the scheme various options are available to any investor and he can wish to select the same at his own will/depending upon his financial needs.

Now let see the list of intermediaries involved in the scheme;

1. The Pension Fund Regulatory and Development Authority:  PFRDA is basically the regulator of NPS and is also responsible for the registration of other intermediaries appended below in the list.

2. The Central Record Keeping Agency: An intermediary between the investor and the pension fund managers. All the data relating to inflow and outflow of funds along with daily/regular statements are provided by this agency.

3. Pension fund managers: The fund managers of the NPS. All the money inflow by the investors is well taken care of by these funds managers as they are supposed to strictly follow the investing guidelines issued by the PFRDA.

4. Annuity Service Providers: Responsible for providing the annuity amount to investor as per their withdrawal requisite or to the investors who attain retirement after the age of 60 years

5. Trust & Trusty bank: Responsible for taking care of the funds available.

6.Point of Presence: First point of contact to get in touch with the NPS system and become a investor.

Types of NPS accounts available

Tier 1 Account: this account is a non withdrawal account where in, the lock in period is upto the age of 60 years (only at the time of retirement). Even if, anyone wants to withdraw the amount, he can withdraw only opto 20% of his portfolio and the rest 80% should only be used for purchasing a life annuity scheme by the insurance providers. i.e. under this scheme only 20% of the amount would come in your pocket in case of early withdrawals.

Tier 2 Account: To have a Tier 2 account one of the criteria is to have an active Tier 1 account. And there after further amounts can be deposited in this account and can also be withdrawn at any point of time.

Happy Retirement!!!