Pension or retirement plans provide financial security and stability during old age, when people do not have a regular source of income. It gives an opportunity to invest and accumulate savings and get a lump sum amount and/or a regular income through annuity plan on retirement.
It ensures that people live with pride and without compromising on their standard of living during old age. Moreover, surveys show that most private sector employees are unaware about the pensions schemes available for them.
As per Census 2011, the elderly population (persons aged 60 years and above) accounted for about 104 million which was about 8.6% of total population in 2011. Consequently, the old age dependency ratio, which in India indicates the dependence of the elderly on the working population, has increased from 12.2% in 1991 to 13.1 % in 2001 and further to 14.2% in 2011.
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme (which is under the regulatory purview of PFRDA) designed to enable its subscribers to make optimum decisions regarding their future through systematic savings during their active working life.
NPS is available to all Indian citizens between 18 and 60 years of age. It is a Defined Contribution (DC) pension scheme where the contributions that subscribers make are invested to earn market returns. While it is mandatory for government employees, NPS is available to persons from the private or unorganised sector on voluntary basis.
Persons who join NPS on voluntary basis can contribute a minimum of Rs 1,000 every year, with no ceiling on the maximum contribution in a year. The accumulated amounts are invested in the diversified securities including government securities, corporate debentures/bonds and equity.
An NPS account can be opened by submitting a form prescribed for subscriber registration, available with any of the 74 registered Points of Presence (PoPs) comprising public and private sector banks, post offices and some non-banking financial institutions with about 57,000 offices, registered so far.
Once registered, the subscriber gets a unique Permanent Retirement Account Number (PRAN). NRI’s can also open their Pension Account under PFRDA schemes. To ensure ease of registration of the subscribers, PFRDA has also launched an online platform — eNPS under which a person can open his NPS account online by using his/herAadhaarcard or PAN card with bank account as KYC documents.
Due to its multiple benefits mentioned below, NPS can be considered as a good product for long-term saving for retirement:
*Flexibility: NPS offers a range of investment options and choice of Pension Fund Managers (PFMs) for planning the growth of your investments in a reasonable manner to ensure that your money grows. Individuals can switch over from one investment option to another or from one fund manager to another, subject to certain regulatory restrictions.
*Simplicity: Opening an account with NPS provides the subscriber with a Permanent Retirement Account Number (PRAN), which is a unique number and which remains with the subscriber throughout his lifetime. Online opening of account through eNPS has further simplified the account opening process.
*Portability: NPS provides seamless portability across jobs and across locations, unlike all other available pension plans, and thus is a hassle-free arrangement for individual subscribers.
*Regulated: NPS is regulated by PFRDA, the pension watchdog, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust, the entity which holds the accounts of subscribers.
Apart from the above, NPS offers an unmatched tax benefits to its subscribers. Employees contributions up to 10% of salary (Basic + DA) are tax deductible under Section 80CCD(1) of Income Tax Act, 1961 subject to a ceiling of Rs 1,50,000 under section 80CCE. Besides, an additional deduction for investment up to Rs 50,000 exclusively to NPS has been provided under Section 80CCD (1B). Therefore, the total deduction that can be claimed is Rs 2 lakh.
Further, employees get tax deduction on the employer’s contribution also, which may go up to 10% of Basic and DA under section 80CCD(2) without any monetary limit.
(The writer is the chairman of Pension Fund Regulatory and Development Authority (PFRDA))