What can be done, for newbie earners to maintain the same level of lifestyle after retirement?

The best solution is to join to NPS scheme and contribute regularly to the NPS account. NPS will give a guaranteed corpus return at the time of retirement and offer a regular income after retirement.

The National Pension System is a government-sponsored voluntary contribution pension scheme in India for creating the corpus for retirement savings. The scheme designed to enable the subscribers to make their retirement future, through systematic savings during their working lifetime. NPS helps to inculcate the saving habit for retirement for newbie earners of India.

KEY POINTS:

• NPS account can be open between the age of 18 to 60 years by an Indian citizen or NRI.
• NPS is a pension scheme, withdrawal is possible only after 60 years of age.
• The account can be transferred to any city or to any organization at any time.
• NPS subscribers can choose Active or Auto investment choice options for fund investment.
• There are 4 different asset classes available for the money investment in NPS.
• The account can be open through authorized banks or directly through eNPS in an online or offline option.
• Under NPS, subscribers can open 2 different accounts called Tier I and Tier II account.
• A tier I account is mandatory and a Tier II account is optional, for those who have a Tier I account.
• Investment to Tier I account is Tax exempted. A Tier-II account is like a saving account.
• From the Tier-I account maximum of up to 60% amount is possible to withdraw, once reaches 60 years, the remaining amount needs to invest in a pension plan. The full amount from Tier-II account can withdraw any time.  
• There is flexibility on the amount which needs to invest in a year but the minimum amount needed to invest in an FY to maintain the account. It is different for Tier-I and Tier-II account.
• There is no fixed rate of interest or returns for NPS holding, it depends on the market performance. Subscribers can expect average returns of 9 to 12%, but not guaranteed.

Benefits of NPS?

NPS is an easy to open and flexible scheme for the investment and to create the retirement corpus.

Voluntary investment: 

Contribute to the account can be done at any time in a Financial Year. The investment amount subscriber can decide, by meeting the minimum annual investment limit.

Simple to Open:

Opening an account is very simple and can be done through any authorized bank or through eNPS (https://enps.nsdl.com/eNPS/) using the online or offline option.

Flexible:

Subscribers can choose their own pension fund for the invested amount and monitor money growth and have the option to change the fund manager if needed.

Portable: 

Subscribers can operate NPS account from anywhere, even after they change the employment and city.

Regulated:

NPS is regulated by PFRDA. NPS Trust will monitor the performance of the fund manager and it offers transparent investment norms.

Age limit for the NPS account?

An Indian citizen or NRI of a minimum age of 18 and maximum age up to 60 can open an NPS account. Under the NPS scheme, a person between the age of 18 to 60 years can open an account and get a PRAN (Permanent Retirement Account Number).

Tax benefits of NPS investment?

Investment up to Rs. 50,000 in NPS Tier I account is tax exempted under subsection 80CCD (1B) of the Income Tax Act. This amount is over and above the exemption of Rs. 1.5 lakh under section 80C. Hence total of 2 lakh will get tax exemption for NPS investment.

What are the two investment choices available in NPS?

For subscribers, NPS offers two investment choices, on the basis of the mode of its operation. After the selection of fund manager for the NPS account, the subscriber needs to select one among the below choice of investment.

1. Active choice
2. Auto choice

Active Choice:

In Active choice, subscribers need to selects the percentage of fund allocation into different asset classes. The total percentage should be 100 percent among all the asset classes.

Auto Choice:

In Auto choice, funds are automatically allocated among the available asset classes. Allocation is done on the base of a defined matrix, and it is based on the age of the subscriber at the time of account opening.

NPS Account Opening Process

Any Indian citizen or the NRI can open an NPS Pension account through eNPS using one of the following options

Option 1 – Registration using Aadhaar e-KYC

Documents required for the registration using e-KYC

• Aadhaar Registered Mobile Number.
• Aadhaar Paperless Offline e-KYC.
• scanned copy of PAN card and CanceledCheque.
• scanned Signature.

Step by step for the account opening process.

Step 1: Need to upload the Aadhaar Paperless Offline e-KYC ZIP file in the eNPS portal.

Step 2: Enter the 4-characters code created at the UIDAI website

• Demographic details (Name, Gender, Date of Birth, Mobile no, Address and Photo) will be fetched from Aadhaar Offline e-KYC Zip

Step 3:  Upload scanned copy of PAN card and Cancelled Cheque

Step 4:  Upload scanned Signature.

Step 5:  In the payment gateway, make the NPS payment through Internet Banking.

• Contributions are credited in PRANs on a T+2 basis

Step 6: Select the option to eSign or Print and Courier the registration form to CRA.

Option 2 – Registration using PAN

Documents required for the registration using PAN and verification by Bank/Non-Bank POP.

• Permanent Account Number’ (PAN)
• Bank / Demat /Folio account details.
• CanceledCheque
• scanned Signature

Step by step process for NPS account opening.

Step 1: fill up all the mandatory details online in the eNPS portal.

Step 2: Upload scanned copy of PAN card and Canceled Cheque.

• KYC verification will be done by the Bank selected by the subscriber during the registration process

Step 3: Upload your scanned Photograph and Signature.

Step 4: In payment gateway, make the NPS payment through Internet Banking

• Contributions are credited in PRANs on a T+2 basis

Step 5: Select the option to eSign or Print and Courier the registration form to CRA.

Additional documents needed for NRI subscribers.

• Bank Account Status i.e., Non-Repatriable account or Repatriable account
• NRE/NRO bank account details
• Scanned copy of passport.
• preferred address for communication.

Which all asset classes money will get invested in NPS?

Under NPS, there are 4 different types of asset classes available for investment. An asset class is classified on the basis of the nature of the underline assets.

Equity or E

• It is a high return-high risk’ asset class.
• In it, funds are fully invested in the equity market, hence the growth of the fund is based on the performance of the market.

Corporate Debt or C

• It is a medium return-medium risk’ asset class.
• In it, funds are invested on fixed income bearing financial instruments.

Government Securities or G

• It is a low return-low risk’ asset class.
• In it, funds are invested purely in Government Securities and bonds.

Alternative Investment Funds or A

• It is also a ‘low return-low risk’ asset class.
• In it, investment asset classes are instruments like CMBS, MBS, AIF, REITS, etc.

Based on the subscriber’s risk-taking capability they can choose to invest their entire pension wealth in the E, A, C, or G asset class.

What are the different types of NPS account?

NPS provides two types of accounts to the subscribers:

• Tier I
• Tier II

Tier I is a mandatory retirement account, as part of the NPS account. Along with the Tier-I account, subscribers can open a voluntary saving Account associated with PRAN it is called Tier II account.

From Tier-I account maximum up to 60% amount only possible to withdraw from the accumulated corpus. For withdrawal of the accumulated amount in NPS, the Tier-II account offers greater flexibility. Amount in the Tier-II account can be withdrawn at any point in time.

What are the benefits of a Tier-II account?

Tier II NPS Account is a part of the NPS account and it can be opened voluntarily after opening the Tier I account, it has the following advantages.

1. No additional
2. Withdrawal is possible from Tier-II account at any point in time.
3. Easy Transfer facility for the fund to pension account at any time.
4. No minimum balance required.
5. No exit load.
6. Nomination facility, even provide the Separate
7. Different Investment pattern can select for Tier-II account from Tier-I

Who can open a Tier II account?

NPS Subscriber who has an active Tier I account is eligible to open a Tier II account

• Any resident Indian can open a Tier-II account if they have an active Tier I account.
• NRI can’t activate the Tier-II account.

What is the minimum contribution needed from NPS subscribers for Tier I and Tier II account?

For Tier I Account :

Minimum number of contributions in a year: 1 Time

Minimum contribution for account opening: Rs 500

The minimum amount for subsequent contribution: Rs 500

For Tier II Account :

Minimum number of contributions in the year: Nil

Minimum contribution for account opening: Rs 1000

The minimum amount for subsequent contribution: Rs 250

How returns calculated in Tier I and Tier II account?

The contribution remitted into the NPS account is passed on to the PFMs (Fund Management system) as selected by the subscriber at the time of NPS registration. Each day of business PFMs declares the Net Asset Value (NAV) of the invested money. On the base of NAV, units are credited into the Subscriber’s account. By multiplying the units held with the NAV, subscribers can calculate the present value of the investment.

Is NPS assured return / div / bonus?

The return under NPS is market-driven, hence, there is no defined amount of return, the performance of the fund will be based on the performance of the market. The returns generated will not be distributed by the way of dividend or bonus, it will be accumulated for the pension corpus.

Do subscribers need to re-open another NPS account when change Jobs?

No. As NPS account can be operated from anywhere irrespective of location and employment in the country. Subscribers can shift PRAN from one sector to another like private to Central Government sector or to State Government or vice-versa.

What are the disadvantages of NPS?

• The annuity or pension which subscribers receive regularly during retirement time is taxable as per the Income.
• After the NPS schemes mature only 60% of the investment eligible to withdraw and the remaining 40% need to invest in some pension scheme.

What is the NPS interest rate?

The interest rate can’t be predicted, as the base investment is on the equity market. The return will be calculated based on the performance of the market. The average expected return rate on the National Pension Scheme (NPS) will be around 9% to 12%. The scheme does not offer any fixed rate of interest. NPS subscribers can choose to switch their investment options and fund managers for a better return if the performance is not met as per the expectation.

Conclusion.

As NPS is a government backed pension scheme, it is the best and easy option for the newbie earners to create their retirement corpus and maintain the standard of living after retirement. NPS helps the subscribers to become self-dependent even after retirement. The NPS allows, on retirement, subscribers can withdraw a part of the corpus, which created by contributing regularly to the NPS account during working time and use the remaining corpus to buy an annuity to get a regular income after retirement.

As an early start will help to create greater corpus returns, it is the time for newbie earners to start the NPS account.

Thanks & Regards.

Harry