National Pension System (NPS) is a defined, voluntary contribution-based retirement savings scheme backed by the Government of India. It is specially designed to help subscribers make systematic savings during their working life and secure their future.
Launched in January 2004, it was initially meant for Central Government employees. Later, in 2008, it was extended to State Government employees, and in 2009, to all citizens.
NPS Eligibility for Indian Citizens, NRIs and OCIs
The National Pension System is regulated by PFRDA (Pension Fund Regulatory and Development Authority), and all Indian citizens, including NRIs (Non-resident Indians) and OCIs (Overseas Citizens of India), aged between 18 and 85 years can join NPS. Participation by NRIs and OCIs is subject to applicable RBI and FEMA regulations, prevailing KYC requirements, and contributions being made through permitted banking channels in India, including eligible NRE/NRO accounts.
The primary objectives of NPS include:
- Encourage the habit of regular savings and investment among citizens
- Provide a steady income to the subscribers and secure their post-retirement life
- Give valuable market-linked returns to all the NPS subscribers
National Pension Scheme Features and Benefits
Voluntary
You can open a National Pension System account and contribute to your account at any time during a financial year at your convenience. You can decide the amount you want to contribute annually. However, each contribution must be at least Rs. 500 for Tier I National Pension System account.
Flexibility
You have the flexibility to select and change the POP (Point of Presence), fund manager, and investment pattern. This ensures optimised returns through investments in different asset classes such as equity, government securities, corporate bonds, debt funds, and other assets.
Portability
You can operate your National Pension System account online from anywhere or through a vast network of POPs, even if you move to a different city and switch employment.
Government Regulated
One of the most significant features of NPS is that it is regulated by PFRDA under transparent norms. Also, since fund managers regularly monitor your investments and conduct performance reviews, you can be assured of disciplined fund oversight.
Tax Benefit beyond 80C
NPS may offer additional tax benefits over and above Section 80C, subject to the provisions of the Income-tax Act. To know more, read “NPS Tax Benefits”.
NPS Tier 1 and Tier 2 Accounts Explained
National Pension System is an excellent investment choice that allows you to build a sizeable corpus to cover your post-retirement and emergency expenses. If you want to join NPS, you can choose between two account types – Tier I and Tier II. Let us understand them in more detail.
Tier I NPS Account
All National Pension System subscribers must compulsorily open a Tier I National Pension System Account. You can deposit the amount in multiple instalments or as a lump sum. If you want to make an additional contribution to your account, you can contribute at any time during the year. However, your contributions cannot be less than Rs. 500. Also, with a Tier I National Pension System account, there is no restriction on the number of contributions you can make in a year. Withdrawals from the Tier I Account are restricted and subject to specific terms and conditions. Different withdrawal rules apply to withdrawal during retirement, premature exit from NPS and partial withdrawal.
Tier II NPS Account
A Tier II account is voluntary, and you can open it while opening the Tier I account or subsequently. You can open a Tier II account with an initial minimum contribution of Rs. 1000, and you need not compulsorily deposit any amount each year to keep it active. If you have opened a Tier II NPS account, you can enjoy better flexibility than a Tier I account in terms of withdrawal; you can withdraw from your Tier II account at any time, as per your convenience.
How to Open an NPS Account Online and Offline
You can open a National Pension System account either online or offline. Let us look at the steps involved.
Offline Method
To open your National Pension System account offline, you must visit the nearest POP (Point of Presence) and submit the subscriber registration form with all the necessary KYC (Know Your Customer) documents and an initial contribution amount.
After receiving the application, the POP will send it for further processing to the CRA (Central Recordkeeping Agency). If your application is approved, the CRA will send you the PRAN (Permanent Retirement Account Number) and the password to access your account, and a welcome kit containing the PRAN card.
Online Method
Opening an NPS account online is easy and quick. You can click on the BUY NPS button on the HDFC Pension website and submit the registration form and KYC documents. You will then be redirected to a payment gateway to make your initial contribution towards opening the National Pension System account.
At HDFC Pension, we have a seamless NPS registration platform to process all your financial and non-financial transactions. You can open your NPS account with the CRA of your choice.
While opening an NPS account, you can use the NPS Calculator to calculate the potential returns on your contributions.
Investing in the National Pension System is an excellent way to secure your post-retirement life and remain financially independent throughout your life.
