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NPS

National Pension Scheme

Last Updated 16th Apr 2021

  • NPS is a voluntary pension system of regular income after retirement.
  • Any private or public sector employee can invest in NPS scheme.
  • The National Pension scheme has two options, NPS Tier-1 and NPS Tier-2.
  • You can open NPS accounts offline by visiting POP-SP and online through eNPS website.
  • You can avail NPS Tax Benefits of up to ₹ 2 Lakh on a NPS account.
  • Partial withdrawal on NPS is allowed after 3 years for specific purposes.
  • The National Pension Scheme interest rate ranges between 8%-10%.
  • Online Facility to change the nominee in NPS system New

What is NPS ( National Pension Scheme )?

NPS or National Pension Scheme is a voluntary government scheme to mobilise your earnings for a regular income as a pension after retirement. The central government launched the scheme under Pension Fund Regulatory And Development Authority on 1st June 2009.

Who can Invest in the National Pension Scheme?

Following people can invest in the National Pension Scheme:-

  • All Indian residents.
  • A person should be in the age bracket of 18-65 years.
  • Employees of the private and public sector.
  • People working in the unorganised sector.
  • Armed force personnel cannot invest.

Features and Benefits of NPS

National Pension Scheme is a voluntary scheme wherein you can invest at any point of time in a financial year.

These are some of the features and benefits of the NPS scheme:

  • Return on investments: National Pension scheme returns are higher as compared to other investment schemes like PPF or FD. The National Pension Scheme interest rate ranges between 8%-10% on the investments depending upon the market-related risks.
  • Well Regulated: National Pension System is regulated by Pension Fund Regulatory and Development Authority (PFRDA). There is transparent monitoring and reviewing of fund managers under the NPS trust.
  • Flexible: National Pension System is a flexible scheme as investors can choose their investment plans and fund managers. The subscribers can also change their investment schemes or fund managers if they are not satisfied.
  • Tax benefits: An investor who invests money in an NPS account is eligible for a tax deduction of Rs up to ₹ 2 Lakh under Section 80 CCD (1). A person can claim a maximum of 10% of his/her salary and self-employed can claim up to 20%.

NPS Tax Benefits

An individual who has invested in the National Pension Scheme can claim tax deductions up to ₹ 2 Lakh under specified limits. However, these tax deductions can be claimed under NPS Tier-1 accounts.

  • Under Sec 80 CCD (1), you can claim a tax deduction up to 10% of gross income up to ₹ 1,50,000. The self-employed businesses can claim tax deductions upto 20% of the total income.
  • Under 80CCD (1B), you can get additional tax deductions for investments up to ₹ 50,000 apart from the tax deductions under Sec 80 CCD (1).

In Budget 2021, it was announced that senior citizens who are above 75 years will be exempted from filing Income Tax returns. This decision has been taken for the senior citizens whose only source of income is pension and interest.

The Process to Open an NPS Account

You can open an NPS account either by visiting POP-SP or through eNPS. In India, NPS accounts are regulated by the Pension Fund Regulatory and Development Authority.

NPS Offline Process

  • To open an NPS account through offline mode, you need to visit the Point of Presence- Service providers and procure a Permanent Retirement Account Number application form.
  • Fill in the necessary details like your mandatory details, scheme preference along with your signature and photograph.
  • Submit the application form and the required KYC documents like identity proof and proof of address.
  • POP-SP will provide you with a receipt number when you submit the form and documents.
  • At the time of registration, you also need to make a minimum contribution of ₹ 500 as your first contribution to the NPS scheme.
  • You can track the status of your PRAN application using this receipt number given by POP-SP, who will send you a Permanent Retirement Account Number.

NPS Online Process

You can also open a National Pension Scheme account online by visiting the eNPS website through PAN & Bank details. The process to open the account through online mode is easy and can be completed in less than half an hour. However, to open an account, your Aadhar card must be linked with the PAN card.

  • Visit the necessary details on the eNPS website using your PAN number.
  • An OTP will be sent to your registered mobile number on submitting the online application form, and this will generate your Permanent Retirement Account Number.
  • To make a contribution to the NPS scheme, log in using the PRA number.

Major National Pension Fund Managers in India

The major pension fund managers of National in India are:

  • Aditya Birla Sun Life Pension Management Limited.
  • HDFC Pension Management Company Limited.
  • UTI Retirement Solutions Limited.
  • SBI Pension Funds Private Limited.
  • ICICI Prudential Pension Funds Management Company Limited.
  • Reliance Pension Fund.
  • Kotak Mahindra Pension Fund Limited.
  • LIC Pension Fund.

Here are some of the top-performing fund managers:

Pension Fund Managers Investment Tier NPS Returns
1 Year returns (%)
NPS Returns
3 Year Returns (%)
NPS Returns
5 Year Returns (%)
SBI Pension Fund NPS Tier-1 13.19 9.01 9.99
HDFC Pension Fund NPS Tier-1 19.15 10.07 11.17
Reliance Capital Pension Fund NPS Tier-2 13.26 9.34 10.87
LIC Pension Fund NPS Tier-2 24.11 12.37 12.34

Types of NPS Account

The two types of NPS Accounts are NPS Tier-1 and NPS Tier-2 accounts. Here is the difference between the two accounts:

Category NPS Tier-1 Account NPS Tier-2 Account
Meaning It is an account that is opened accumulating funds towards retirement This account is more like a savings account that can be used for the holistic purpose
Eligibility 18 years and till the age of 60 Indian resident between 18 years-60 years
Minimum Contribution for opening account ₹ 500 ₹ 1,000
Minimum amount for subsequent contribution ₹ 500 ₹ 250
Tax deductions Avail benefit upto ₹ 2 Lakh No benefits available
Lock in period Till 60 years Can withdraw anytime

Calculation of NPS Pension

NPS pension calculator is an online tool which gives a rough estimate about the NPS Pension and Lump Sum amount based on the following factors:

  • Regular monthly investments
  • Annuity
  • Rates of NPS returns
  • Amount reinvested for purchasing an annuity

If you are calculating NPS returns using the online NPS pension calculator of National Pension System Trust you would be required to fill details such as date of Birth, Monthly investment, Total years of investments and Purchase of annuity.

Consider this illustration to understand the calculation of NPS pension.

If you have decided to invest ₹ 1,000 per month in your NPS account for a total of 42 years. The expected NPS return is 10%, and you choose to purchase the 40% annuity at the rate of 6% your pension corpus at the time of retirement would be as follows:

Monthly Pension- ₹ 15,168
The lump-sum amount for withdrawal - ₹ 46,85,300
Annuity Value- ₹ 31,23,533

NPS Withdrawal Rules

According to the PFRDA (Exits & Withdrawals under NPS) Regulations 2015, the NPS withdrawal can be made under the following circumstances by submitting NPS withdrawal form segregated on the basis of the purpose of NPS withdrawal.

  • NPS withdrawal on Superannuation: On superannuation (Retirement age of 60), 60% of the total amount invested can be withdrawn as a lump- sum amount. The remaining 40% is used to purchase an annuity which serves as a source of regular monthly pension after the retirement.
  • NPS withdrawal before maturity: The premature withdrawal of funds can be made after a lock-in period of 10 years. Investors can withdraw 20% of the total investment as a lump-sum amount, and the remaining 80% is used to purchase the annuity.
  • NPS withdrawal on death: If a person dies, the entire investment amount is paid as a lump-sum amount to the legal heirs of the investors.

  • e-NPS facility for changing the nominee.

    Pension fund regulator PFRDA notified about the e sign based online facility for change of nomination. Under this, NSP subscribers can now change the nominee for the scheme online without physically visiting the associated nodal offices or points of presence for updation. Below mentioned is the stepwise procedure to do the same.

    • Access your CRA system with your login credentials and choose Update personal details under the Demographic Changes menu.
    • Now choose add/update nominee details.
    • Next, submit details of the nominee such as name, relationship with nominee and percentage share etc.
    • Verify and confirm the details.
    • Now, provide the one time password (OTP) received on your registered mobile number.
    • Next, authenticate the changes by selecting the E sign option.
    • Finally, the subscriber will be taken to the e signature service providers page. Now enter Aadhaar or Virtual ID and click on send OTP and provide the OTP and click on verify OTP.

FAQs

Is NPS a good investment?

Yes, the national pension scheme is an excellent voluntary investment scheme for retirement savings. NPS benefits may include monthly pension after retirement and tax benefits as well.

Who can open an NPS account?

Any Indian and Non-Indian Resident who is an employee of a private or a public organisation can open an NPS account.

Is NPS better than PPF?

Yes, you can get better NPS returns than PPF; however, PPF is more tax-efficient on maturity.

What happens to NPS if I die?

If a person dies, the entire investment amount is paid as a lump-sum amount to the legal heirs of the investors.

What is the locking period of NPS?

The lock-in period of the NPS scheme is a minimum of 10 years. However, you can partially withdraw funds after the lock-in period.

Is NPS risk-free?

NPS is a great investment tool because it helps accumulate a substantial corpus by the age of retirement. However, NPS returns are subject to the risks of the market especially if fund managers cannot take undue risk.

What is the NPS interest rate?

The interest rate on NPS varies for every fund manager.However, an investor can earn an interest rate of upto 8% - 10%.


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