National Pension System or NPS, a government-run investment scheme, gives the subsriber the option to set the preferred allocation to different asset classes, such as government bonds, equity market instruments and corporate debt. An NPS account can be opened by a citizen of 18-65 years of age, according to National Securities Depository’s (NSDL) website – npscra.nsdl.co.in. NSDL is the Central Recordkeeping Agency (CRA) for NPS. CRA issues a Permanent Retirement Account Number (PRAN) to each subscriber.
Here are 10 things to know about National Pension System (NPS):
NPS was originally launched for the government employees in 2004 and extended to the general public in 2009.
It offers two kinds of accounts: Tier 1 and Tier 2. While the Tier 1 NPS account is strictly a pension account which doesn’t allow withdrawals, the Tier 2 account – known as investment account – is a voluntary saving account associated with the PRAN.
The subscriber can either apply for an NPS account by visiting a Point of Presence (PoP) in person, or online through the e-NPS website- enps.nsdl.com. In the online mode, the applicant is required to quote the PAN (Permanent Account Number) along with bank details.
In an NPS account, the subscriber is allowed to check the investment amount on a day to day basis, according to NSDL.
Central government subscribers have the option of selecting the Pension Funds (PFs) and investment patterns in tier I account.
A Tier 1 account allows the subscriber to make a premature withdrawal or even exit under certain conditions. A Tier II account offers greater flexibility in terms of withdrawal, as it enables the subscriber to withdraw funds any time without any restrictions.
In case the total accumulated corpus in a Tier 1 account is less than Rs. 2 lakh, the subscriber can opt for a 100 per cent lump sum withdrawal upon attaining 60 years of age, according to NSDL.
To be eligible for premature exit, at least 80 per cent of the accumulated pension wealth of the subscriber has to be utilized for purchase of an annuity, provided the monthly pension to the subscriber and the balance is paid as a lump sum to the subscriber, according to NSDL.
In case the subscriber dies, at least 80 per cent of the accumulated pension wealth of the subscriber has to be utilized for the purchase of an annuity and the balance is paid as lump sum to the nominee.
Investment in a Tier 1 account offers income tax benefits. There is no tax benefit on the fund parked in a Tier II NPS account.