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Available to most people and with flexible investment options, the National Pension System (NPS) can improve your overall life experience after retirement
Among the many retirement investment schemes, one of the popular options is the National Pension System (NPS). Let us take a look at some of the key benefits to understand why NPS could be a great help in fulfilling your retirement goals.
Tax benefits – With NPS, you can claim tax deduction of up to Rs 1.5 lakh every year under Section 80C. You can also claim an additional Rs 50,000 deduction, which is exclusively for NPS contribution, available under Section 80CCD(1B). A percentage of employer NPS contributions for salaried employees is exempt under Section 80CCD(2). It is 10% of salary (Basic + Dearness Allowance) for private sector employees and 14% for central government employees.
Flexible investment approach – Based on your risk appetite, you can choose the type of investment options available under NPS. For example, you are given the freedom to choose the asset allocation when you opt for Active Choice. You can choose equity investments, corporate bonds or go with the safer government securities. In Auto Choice, the asset allocation will be done as per default settings based on your age. You can also choose Pension Fund Managers (PFMs) to ensure the best returns on your investments.
Low fund management cost – NPS is ranked among the most affordable in the world in terms of costs associated with fund management. The cost is in the range of Rs 30 to Rs 90 for every lakh invested. In comparison, mutual fund investment costs can be around 2% to 2.5%. For a lakh, that would be an expense fee of up to Rs 2,500. This is much higher than NPS.
No burden of large investments – NPS provides users the flexibility to invest as per their availability of funds. For opening an NPS Tier-I account, you just need Rs 500. And the minimum annual contribution is just Rs 1,000. You can invest depending on the level of funds you have. For an NPS Tier-II account, the initial contribution is Rs 1,000. There is no minimum investment requirement for the following years.
Tax-free lump sum withdrawal – After an individual reaches age 60, they can withdraw 60% of the accumulated funds as lumpsum amount. This is completely tax free. The remaining 40% of the accumulated funds is annuitized. It ensures that retirees can access a regular stream of income.
Systematic Lump Sum Withdrawal (SLW) – Depending on their needs, NPS subscribers can choose Systematic Lump Sum Withdrawal (SLW) instead of the one-time lump sum withdrawal. By choosing the Systematic Lump Sum Withdrawal (SLW), NPS subscribers can access regular lump sum withdrawals for up to 75 years of age.
As is evident from above, NPS offers multiple benefits to folks planning their retirement. Indian citizens and even NRIs can open an NPS account. The age limit is 18 years to 70 years. NPS Tier-I account is mandatory, whereas NPS Tier-II is optional. The latter can be opened by any private or government employee, self-employed individuals and workers in the unorganized sector. Both online and offline options are available to open an NPS account. For opening NPS account online, you can visit https://enps.nsdl.com/eNPS/NationalPensionSystem.html
