The New Pension Scheme (NPS) – all that you need to knowPosted: February 16, 2013
You would have heard and read about how the young average age of the Indian population is advantageous for the Indian economy. While there is no doubt about this being true, it is expected that this average will increase in the future leading to a larger population in the 60+ age group making retirement planning more important than it is currently considered in India. According to the latest UNFPA report, the number of Indians above 60 years is expected to rise to 55% by 2050. The longevity of life is also expected to increase with a more active post-retirement life owing to betterment in medical facilities.
This means that tomorrow’s retirees will have a longer retirement life and must therefore accumulate a bigger corpus for their sunset years. The way to ensure this is, good retirement planning.
The New Pension Scheme (NPS) launched by the Pension Fund Regulatory and Development Authority (PFRDA) in 2009 is an answer to the 401 (K) retirement scheme in USA. NPS is essentially a Government approved pension scheme for Indian citizens in the 18-60 age group. It is mandatory for central and state government employees to subscribe to this scheme, while it is optional for others. Since being launched in 2009, the scheme has gone through a lot of changes in process of making it more popular. The current features of this scheme are as follows: –
The scheme offers two kinds of accounts namely, Tier I and Tier II accounts. Tier I account is mandatory for a subscriber of the NPS, whereas Tier II account is optional in nature. One can open a Tier II account only if he has a Tier I account. Major difference between the two accounts is that in Tier I account, there are restrictions on withdrawal whereas, a subscriber is free to withdraw money from the Tier II account.
The minimum annual contribution for Tier I account is Rs. 6000, which can be paid at once or in installments of at least Rs. 500. The minimum contribution in Tier II is Rs. 250 per transaction and at the end of a year, the minimum balance in this account should be Rs. 2000 or else the subscriber is liable to pay a fine.
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