NATIONAL PENSION SCHEME (NPS)

The National Pension Scheme (NPS) is a government-backed pension scheme in India that was launched in January 2004. It is designed to provide citizens with a regular income stream during their retirement years. The scheme is open to all citizens of India between the ages of 18 and 65 and is particularly aimed at those who are not covered by any other pension scheme, such as government employees and workers in the unorganized sector.

The NPS operates on a defined contribution basis, which means that the amount of pension an individual receives is determined by the contributions made into their pension account over their working life, as well as the returns on those contributions. Contributions to the NPS are made by the individual, their employer, and the government, and are invested in a variety of asset classes such as equities, bonds, and government securities.

THE NPS HAS TWO MAIN TIERS:

1. Tier I is the pension account, which is mandatory for all subscribers and is non-withdrawable until the subscriber reaches the age of 60.
2. Tier II is a voluntary savings account, which allows subscribers to make additional contributions and make partial withdrawals.

OBJECTIVES:

The objectives of the National Pension Scheme (NPS) in India are,

• To provide a retirement savings plan for citizens,
• To promote old age income security,
• To encourage people to save for their retirement,
• Providing a tax benefit to encourage people to save for their retirement,
• It also aims to provide pension to the citizens based on their contributions and investment returns,
• Additionally, the scheme also aims to provide an efficient and flexible pension system that is portable across the country.

FUNCTIONS:

Providing retirement benefits: The National Pension Scheme (NPS) is a government-sponsored pension scheme that aims to provide retirement benefits to citizens of India.

Tax benefits: Contributions made to the NPS are eligible for tax benefits under Section 80C and Section 80CCD of the Income Tax Act.

Long-term investment: The NPS is a long-term investment option and encourages citizens to save for their retirement years.

Flexible investment options: The NPS offers two investment options - Tier I (Mandatory) and Tier II (Voluntary) - which allows subscribers to choose the investment strategy that best suits their needs.

Professional management: The NPS is professionally managed by Pension Fund Regulatory, and Development Authority (PFRDA) and the scheme is offered through various Point of Presence (POP) and Points of Presence Service Providers (POP-SPs)

Choice of pension fund managers: Subscribers have the option to choose from a list of pension fund managers to manage their funds.

Portability: Subscribers can transfer their NPS account from one POP-SP to another, ensuring flexibility and convenience.

Withdrawal: Subscribers can withdraw a portion of their accumulated corpus at the time of retirement, while the remaining corpus is used to provide a regular pension.

Nomination Facility: Subscribers can nominate a nominee for their NPS account.

Access to government schemes: Subscribers of NPS are also eligible for other government schemes such as Atal Pension Yojana and Pradhan Mantri Vaya Vandana Yojana.

Overall, the National Pension System (NPS) is a useful tool for retirement planning in India. It offers citizens a regular income stream during their retirement years and provides a high degree of flexibility in terms of investment choices and partial withdrawals.