Pension plans render financial security to subscribers, especially post-retirement, when their source of income may vary. The majority of people look for investment plans that are secure, less volatile, and have maximum returns. If you are also looking for a plan with good returns and less risk, the best option is to invest in any Government Pension plan in India.
To open an account in the National Pension Scheme, the candidate should be Indian between 18 and 40. This plan matures when the subscriber becomes 60, but they can also get it extended up to 70 years of age.
The best part about this government pension plan in India is that it facilitates the subscribers to make partial withdrawals of up to 25% of the amount invested. You can do it after three years of opening the account in certain circumstances, such as buying a home, a child’s education, or treating any acute illnesses.
Although there are various Government Pension Schemes in India, one of the best government pension plans is the National Plan System.
- Government Pension Scheme comes with several benefits, such as flexibility and less risk.
- The government started this scheme because they wanted to provide financial security to people when they retire, plus it also teaches a habit of saving.
What is the National Pension Scheme?
The national pension Scheme is regulated & administered by the Pension Fund Regulatory and Development Authority (PFRDA). It is one of India’s best Government Pension Schemes; the government founded this scheme to render financial protection to the country’s senior citizens.
Their primary focus was to make pension reforms and create a habit of saving for retirement among the citizens. This Govt Pension Scheme is open to employees working in all the sectors, such as Public, Private, and even the unorganised sector, but does not apply to people working in the armed forces.
The reason armed personnel are not included in this Govt Pension Scheme is that their working conditions are pretty different compared to the government’s civilian workforce.
Who should Invest in the Government Pension Scheme in India?
National Pension Scheme (NPS) is an amazing scheme for people who wish to plan for their retirement timely and invest in a less risky scheme. A fixed monthly income after retirement can help you secure your small expenses, and you will not be tense about working even after your retirement.
This plan is also for people looking for tax savings, as by investing in this Govt pension scheme, you can make the most of the 80C deductions.
Features and Benefits of the National Pension Scheme
Let us know about some of the features and benefits that this central government pension scheme offers to the subscribers-
- Return- Some of the amount invested in NPS is invested in equities as that helps you get higher returns than other conventional investing methods like PPF. You can get an interest of around 9 to 12% in this scheme; therefore, if you are looking for a financially secure life post-retirement, this is the best government pension plan.
- Tax Benefit- Many people opt for this government pension scheme in India because it offers great tax benefits. An investment of up to 1.5 lakhs is qualified to get tax concessions under Section 80C of the Income Tax Act. The best part is that tax redemption is applicable for investment by both employer and the employee.
- Withdrawal rules after 60- As per the rules, the subscriber cannot take out the entire amount in one go after retirement. Keeping 40% of the accumulated fund is compulsory to get a steady annuity from the PFRDA registered insurance firm. The good part is that the rest of the 60% of the collected fund is tax-free.
- Equity allocation rules- As per this central pension government scheme, you can select an investment plan as per your choice. If you invest in equity, the investors need to fund 50% of their investment in equities. There are two alternatives for financing in equity: active and auto choice.
If you opt for active choice, you will have the option to fund and split investment as per your risk-taking capability. On the contrary, if you go for auto choice, the investment is made considering the investor’s age and risk profile.
Did You know?
- Atal Bihari Vajpayee, former Prime Minister of India, discontinued the old pension scheme for government employees in 2003. Instead of the old scheme, he introduced the NPS. The govt pension scheme is open for all recruits who join the Central Government service (except armed forces).
Types of NPS Account
There are various government pension schemes in India, but NPS is the best as it offers multiple plans to choose from as per the investors’ budget, risk-taking capacity, and tenure. Here are the two sorts of accounts that NPS offers –
- Tier-I Account
This is the primary NPS plan that comes with specific withdrawal constraints. Only 25% of the contribution can be made before the investor becomes 60, and the remaining 75% should be used for purchasing the annuity from a life insurer.
Here the annuity means a series of payments that is to be made at fixed intervals. Therefore, in annuity plans, the investor will have to pay the amount at fixed intervals till the maturity of the plan or his death. After they reach 60, they will have the option to withdraw the 60% of the amount, and the remaining 40% should be used for purchasing the annuity from an approved life insurer.
- Tier-II Accounts
These are voluntary accounts from which the investor can withdraw the money without any fixation on the limit. The investment done in this account is a blend of corporate bonds, FDs, equity, government funds, liquid funds, etc. You need to provide a minimum of Rs.1000 for opening this account, plus it is also necessary for you to keep a minimum balance of Rs.2000 at the end of the financial year.
How to Open an NPS Account Online?
- You can also open an NPA account online by visiting their official website enps.nsdl.com.
- Once you open the website, select the type of subscribers option and choose ‘Individual’ if you are an employee and ‘Corporate’ if you are the employer.
- After that, select if you are an NRI or Indian Citizen.
- Then you will have to choose the account type: Tier-I or Tier-II.
- Provide your PAN card details and a suitable bank or POP.
- Select the option ‘Registration’ and choose ‘Register with Aadhar’.
- Put your Aadhar’ card number and click on generate OTP.
- OTP will be sent to your registered mobile number.
- Put OPT and other details such as DOB, name, bank details, etc.
- Submit the application form.
- You will be allotted the Permanent Retirement Allotment Number (PRAN).
- Now, you need to submit your photograph and e-signature. You will be sent an OTP again for confirmation.
- Put the OTP and confirm.
- Make the payment, and as soon as the payment is made, the PRAN will be generated.
The minimum investment a subscriber can make in this scheme is Rs.6000 annually, and you can also pay this amount as monthly instalments by just paying Rs.500 monthly.
Words to Remember
Commutation of Pension – Under the Central Government Pension Scheme, there is a clause that the central government employee can commute a certain amount of their pension into a lump sum payment. This amount cannot exceed 40% of the total investment amount. No medical examination is needed if the commutation is done within one year of retirement.
This was about India’s best government pension scheme; you can avail the maximum benefits by planning well in advance. It would be best to always create a portfolio before you plan to invest in any plan as there are various options available such as ELSS, PPF, and FD. Therefore, you should compare all the plans and check the lock-in period and risk profile before making the final decision.
The lock-in period for NPS is till retirement, and it comes with market-related risks.
Any Indian with a minimum age of 18 and maximum age of 65 can open an NPS account. Furthermore, the subscriber must be KYC compliant.
The central government decides the minimum contribution in this govt pension scheme; therefore, it is mandatory to pay this amount. If you miss paying this amount, your account will be frozen.
To get your account activated, you will have to visit the POP and pay a minimum penalty of Rs. 100.
The government does not pay any amount in your NPS account.
Read more about Different Types of Pension Schemes.