Description

Under this scheme, the employer is under an obligation to provide for the pension of an employee if the employee has provided its services for a minimum of 10 years. The monetary benefits are delivered in the form of a monthly pension as long as the employee is alive after the age of 58. Post demise, the benefit is rendered to the spouse and children, if in case the children are less than 25 years of age.

The services were launched by the Pension Fund Regulatory and Development Authority (PFRDA) in the year 2004, the service being provided under the National Pension Scheme is a retirement plan similar to a Public Provident Fund (PPF) or an Employee Provident Fund (EPF). It is voluntary in nature and the individual's savings are pooled in a separate pension fund. For many, it acts as the most suitable and a very risk-free solution of a systematic investment plan for any working individual. The National Pension Schemes strives to provide stable and regular income post-retirement.

As per the norms provided by the authority, the minimum yearly contribution is ₹ 6,000 which can be made as a lump sum investment or through smaller installments of ₹ 500 every month. Every Indian citizen between the age of 18-60 years can apply for an NPS at any point in their life they feel is right to start saving with national saving schemes.

Accounts under National Pension Scheme

When an applicant or an employee registers for the National Pension Scheme, post-registration they are provided with a Permanent Retirement Account Number (PRAN), which acts like a unique identification number for the policy account. 

All those who become a subscriber to this scheme, are allotted a 12-digit number for a lifetime, and it is valid across India. Anyone with a subscriber ID or the PRAN can gain access to the services at any pension regulatory center.

There are majorly two types of account under the National Pension Scheme, namely;

  1. Tier – I account
  2. Tier-II account

Tier – I Account

This a basic pension account where you can withdraw only 20% of the investment and 80% of the remainder remains invested in the pension fund provided you are below 60 years of age. Post 60 years of age, an approximate of 60% can be withdrawn while the remainder 40% is utilised for purchasing annuities.

Tier – II Account

This plan was launched in 2009 and offers great flexibility. Under this plan, the account holders can withdraw their amount without any withdrawal charges or penalty. Also, they offer investors an option to invest either in Equity, Corporate Debt, Government Securities, Alternative Investment Funds.

There is also another scheme that has been launched to provide post-retirement services to the underprivileged. Earlier it used to be known as the Swavalamban Yojana Account. Later it was renamed to Atal Pension Yojana by the Government of India in the year 2015.

National Pension Scheme Vs New Pension Scheme

Features

National Pension Scheme

New Pension Scheme

Employees Contribution

Must contribute 10% of the special pay, basic pay and other allowances

All included with the dearness allowance

Contribution & Withdrawal

Can be stopped providing advance one-month notice

Withdraw and contribute at any given time

Managing Authority

Provident Fund Org.

6 Fund managers appointed by PFRDA

Scope of Regulation

None

Through PFRDA

Charges

No charges or fees to subscribe

Fixed and variable both

National Pension Scheme Fund Managers –

The National Pension Scheme is offered to over a crore subscriber every year and is managed by various fund managers, who re-invest the corpus of funds to get fair returns in order to provide for the subscriber’s pension by the end of their services. At the time of applying for the services on offer, the applicant is required to opt for a fund manager, who will look after the investment and disinvestment of funds on behalf of the applicant over the years.

The Pension fund is managed by various fund managers. For all government employees who avail these services are mainly the Life Insurance Corporation Pension Plan,State Bank of India Pension Plan and the UTI Retirement Solutions. 

However, for non-government employees, the pension fund is managed by ICICI Prudential Pension Plan, IDFC Pension Plan, Kotak Mahindra Pension Plan, Reliance Capital Pension Plan, SBI Pension Funds and UTI Retirement Solutions.

Top Performing NPS providers

Scheme Name

1-year Return

2-years Return

3-years Return

LIC Pension Fund – Tier II

24.11%

12.37%

12.34%

LIC Pension Fund – Tier I

23.10%

12.08%

12.31%

HDFC Pension Fund – Tier I

19.95%

10.07%

11.17%

Kotak Pension Fund – Tier I

20.38%

10.19%

11.28%

Birla Sun Life Pension Scheme – Tier I

19.82%

-

-

Birla Sun Life Pension Scheme – Tier II

19.74%

-

-

ICICI Prudential Pension Fund – Tier I

20.00%

10.24%

11.32%

ICICI Prudential Pension Fund – Tier II

13.22%

9.16%

10.31%

Reliance Capital Pension Fund – Tier II

13.26%

9.34%

10.87%

SBI Pension Fund – Tier I

13.19%

9.01%

9.99%

Types of funds in National Pension Scheme –

Class of Fund

Investment Type

Risk Associated

Avg. return (Per annum)

E

Index Based Stocks

Market volatility risk, similar to large cap funds

3.79%

C

Bonds issued by PSUs, GOI and Private firms

Low risk, Risk-free

8.66%

G

Bonds issued by the Central Government

No default risk, Volatile over long term

5.92%

Prominent Features of the National Pension Scheme

The National Pension Scheme is sponsored by the Government of India, and here are some of the unique features of this scheme:

  • The NPS offers fixed return up to 10% and as minimum as 8% 
  • The funds from the National Pension Scheme are also invested in equities of various asset classes
  • Facility to change or replace the fund manager over the course of scheme
  • Tier-I account holders require to deposit ₹ 6,000 over the course of a year while the Tier-II account holders are required to deposit ₹ 2,000 per annum
  • National Pension Scheme can be availed by both online and offline sources
  • Subscriber can only withdraw 60% of the corpus post retirement, while the rest is paid in form of monthly pension over the years
  • Post completing 3 years of an active NPS account, a subscriber can withdraw up to 25% of the accumulated fund by providing specific reasons

Some important benefits of the National Pension Scheme are as following:

Tax Benefit –

The National Pension Scheme is one of the low-cost investment or saving schemes in our country, and allows the subscribers to avail tax benefits on the amount being deposited or contributed every year. 

The 

NPS Charges –

The National Pension Scheme is run and regulated by the Government of India, which makes it one of the easily accessible and low-risk investment tools as compared to others. 

Here is a list of few charges as applicable with the National Pension Scheme:

Intermediary

Head

Service Charge

Central Record Keeping Agency

Account Opening Charges

NSDL ₹ 40; Karvy ₹ 39.36

Annual Maintenance Cost

NSDL ₹ 95; Karvy ₹ 57.63

Charge Per Transaction

NSDL ₹ 3.75; Karvy ₹ 3.36

Point of Presence (POP)

Initial Subscriber Registration

₹ 125 only

Any subsequent charges

0.25% of contribution, Min. ₹ 25 and max ₹ 25,000

Custodian

Asset servicing charges

0.0032% per annum for Electronic and Physical segment

Fund Manager Charges

Investment Management Fee

0.01% of contribution p.a.

NPS Trust

Reimbursement of Expenses

0.005% of contribution p.a.

CRA

For address change, manager change and other transactions

₹ 20 per transaction

PoP

Persistency charge

₹ 50 per annum for every year completed in service