National Pension Scheme
NPS Scheme
National Pension Scheme (NPS): A Complete Guide
The National Pension Scheme was a scheme for government employees. It was launched in January 2004 and is a government-sponsored scheme. Later, in the year 2009, the National Pension Scheme widened its scope. Every person who can apply under the scheme has to contribute a regular amount of money to their pension account during their working tenure. After retirement, they can withdraw the money. They can even withdraw a part of the matured amount as a lump sum and use the remaining amount to get a regular source of income after retirement.
How Can a Person Join NPS?
Those persons who are interested in opening an NPS account should contact the Point of Presence (POP) service providers. They act as the collection points. These authorized branches help people open an NPS account. Points of Presence can be both public and private sector banks, financial institutions, etc.
Who is Eligible for NPS?
The National Pension Scheme is for every Indian citizen who is between the age group of 18 to 60 years. They must comply with KYC norms.
Even NRIs are eligible for NPS, as long as there is no change in their citizenship status.
Documents Necessary to Open an NPS Account
Subscribers need to furnish certain documents to the POPs to open their NPS account:
Registration form
Identity proof
Address proof
Birth certificate
How Does NPS Work?
Those who open an NPS account get a number known as the Permanent Retirement Account Number, or PRAN. Every NPS account holder is issued a card with this unique 12-digit number.
Under the National Pension Scheme, every subscriber can hold two accounts, known as Tier 1 and Tier 2 accounts.
The Tier 1 account is compulsory, whereas the Tier 2 account is voluntary.
Tier 1 does not allow the subscriber to withdraw the whole amount even after retirement. There are certain restrictions on complete withdrawal.
There are no such restrictions on the Tier 2 account. The National Pension Scheme account holder is free to withdraw any amount of money from that account.
Those willing to open a National Pension Scheme account must deposit a minimum of Rs. 6,000 per year into the Tier 1 account. In cases of discrepancy, the account may freeze. The subscriber can then visit their nearest POP centre and pay the required sum of money, along with a minimum penalty of Rs. 100.
What Investment Choices Does NPS Offer?
The National Pension Scheme offers the following choices:
Life Cycle Fund / Auto Choice: This is a default option that automatically invests money for the subscriber, as per their age.
Active Choice: Under this option, a National Pension Scheme subscriber can decide for themselves how they want to invest across different asset classes.
How Can a Person Withdraw Money from an NPS Account?
The subscriber has to submit a withdrawal form to the POP centre, along with the necessary documents. POPs, after checking the authenticity of the documents, forward them to the National Securities Depository Limited and the Central Record-Keeping Agency (CRA). After the final checks, the CRA registers the claim of the subscriber and forwards the application form along with the list of documents needed for the withdrawal. After the final submission, the CRA helps settle the account of the National Pension Scheme account holder.