What is NPS, How to Apply For Monthly Pension

The National Pension Scheme (NPS) is a government of India’s effort that aims to offer retirement benefits to all Indian residents, including those in the unorganised sector. NPS is a defined, voluntary contribution system that is market-linked and managed by professional fund managers. It is regulated and operated by the PFRDA or Pension Fund Regulatory and Development Authority under the PFRDA Act 2013.

Individual subscribers' contributions to the National Pensions Scheme accrue until retirement, and the corpus grows through market-linked returns. Subscribers can also drop out of the plan before reaching retirement age or opt for superannuation. This plan, on the other hand, assures that a portion of a subscriber's funds is used to provide retirement benefits.

As a result, at least 40% of the contribution is used to acquire a lifetime pension via the purchase of an annuity for retirement, departure, or superannuation. The remaining funds are paid to the subscriber in a lump sum.

Features and Advantages of the National Pension System

Liquidity and flexibility via two different account types.

Individuals can make systematic investments in the National Pension System through one of two accounts. Each subscriber receives a unique Permanent Retirement Account Number, or PRAN, after creating an account with the National Pension System. PRAN is used to handle funds, including contributions to this programme.

Tier-I account

This serves as a pension account, with withdrawals subject to certain limits. A minimum deposit of Rs. 500 is required to start this account.

Tier-II account

Tier-II accounts are optional accounts that provide money liquidity through investments and withdrawals. For a Tier II account, a minimum deposit of Rs. 250 is required.

Investments in Tier-II accounts are permitted only if the subscriber has an active Tier I account in his or her name.

Individuals can subscribe to the National Pensions Scheme through PFRDA-appointed intermediaries via the two accounts indicated above, as per the National Pension System design. 

The following are examples of intermediaries:

Trustee banks

Custodians

CRA, or Central Recordkeeping Agency,

NPS trust

PoP or Points of Presence

Annuity Service Providers.

Subscribers can choose between the two investing choices below, giving them a lot of flexibility.

Auto choice

According to the system, it is offered as a default option for subscribers. This option allows an investor's fund investments to be handled automatically by a fund manager who is appointed based on the investor's age profile.

Active choice

Individuals can choose from a variety of asset types in which to put their cash under this option. They can also invest varying percentages of donated funds, with a maximum cap of 50 per cent for Asset Class E or Equities. Class C, or Corporate Debt Securities, and Class G, or Government Securities, are two more asset classes.

Subscribers also have the option of changing their investment selections as well as their fund manager. These possibilities, however, are constrained in certain ways.

Option to make a partial withdrawal

Another advantage of the NPS plan is the ability to partly withdraw funds. It allows individuals to have partial access to assets saved over time, allowing them to satisfy financial requirements before retirement in the event of an emergency.

A subscriber can make partial withdrawals of their Tier I scheme contribution up to a maximum of 25% under the regulations for partial withdrawals.

Withdrawals are, however, subject to the following clauses.

To qualify for the partial withdrawal facility, you must make contributions for a minimum of ten years.

In addition, there should be a 5-year interval between two consecutive withdrawals.

Tax benefits

The following sections detail the income tax benefits available for National Pension Scheme investments.

Other tax benefits for NPS Tier I investments include –

A subscriber can withdraw up to 25% of their Tier I payments tax-free.

The purchase of annuities from the National Pension Scheme corpus is tax-free. The income earned from such an annuity in subsequent years, however, is taxed.

A lump-sum withdrawal of up to 40% of an NPS corpus once a subscriber reaches the age of 60 is tax-free.

Thus, if the entire corpus produced via the National Pension System is Rs. 20 lakh at the age of 60, a lump sum withdrawal of 40%, i.e. Rs.8 lakh, will not be taxed. Furthermore, if you use the remaining 60% of your assets to buy an annuity, the full corpus will be tax-free. The only difference is that the annuity's income will be taxed.

The Registration Procedure for the National Pension Scheme

Individuals can register and obtain a subscription to the National Pension System through the online platform eNPS. Registration for the scheme can be done through the following steps.

Step 1 – Go to the eNPS portal available on the official website of the National Pension System.

Step 2 – Choose your subscriber type from the available options ‘Individual Subscriber’ and ‘Corporate Subscriber’.

Step 3 – Choose a suitable residential status. The options include ‘Citizen of India’ and ‘NRI’.

Step 4 – Opt for either the Tier I account type or both accounts as the choice of the former is mandatory for long-term savings.

Step 5 – Enter your PAN details and select a suitable bank or PoP. It is ideal to choose a PoP with whom you have an existing relationship, such as a savings/current/Demat/account for KYC verification, as the chosen PoP will do it.

Step 6 – Upload the scanned copy of your PAN card along with a cancelled cheque. The image format should be in .jpg, .jpeg or .png format with a file size of 4KB to 2MB.

Step 7 – Next, upload your scanned photograph and signature in the same format and size as above.

Step 8 – Once routed to the payment gateway, proceed to pay the required charges via online banking.

Step 9 – With the completion of payment, your Permanent Retirement Account Number will be generated.

While this was the process of completing PRAN generation for all subscribers, NRIs need to complete a few additional steps, as follows.

Choose the status of the bank account, i.e., either repatriable or non-repatriable.

Provide the details of the NRO or NRE bank account along with the passport’s scanned copy.

Choose a suitable communication address, i.e. either a permanent or an overseas address. Note that communication with the latter attracts additional charges.

Once the PRAN is allotted, an applicant needs to proceed with either of the following steps for authentication.

E-Sign option for authentication

On the E-sign/Print & Courier page, choose the E-sign option.

Authenticate with an OTP sent to the mobile number registered on your Aadhaar card.

After Aadhaar authentication, the registration form is signed successfully, and you do not need to send a physical copy.

Note that service charges are applicable for e-signing your registration form. However, if you are unable to complete the online authentication process, you can opt for the alternative option given below.

Authentication via print and courier

To proceed with this authentication process, you need to select the Print & Courier option on the initial page.

Then, print the page's form, paste the photograph and sign in the designated signature block.

Send the form within 30 days of PRAN allotment to the address given below. Not doing so will result in temporary freezing of the PRAN.

Address for sending the authentication form –

Central Recordkeeping Agency (eNPS)

NSDL e-Governance Infrastructure Limited,

1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg,

Lower Parel, Mumbai – 400 013

Who could benefit from the NPS?

An individual’s eligibility for the National Pension System depends on the various NPS models in operation. These are –

Government sector National Pension System model

The pension system applies to government employees, both central and state, except for those employed in the armed forces. Under this model, a contribution of 10% of a government employee’s salary goes to the National Pension System with an equal contribution by the government. Central government employees receive a contribution of 14% from the government.

Also, all states in the country have implemented the NPS National Pension System, excluding the Government of West Bengal.

The corporate model of the National Pension System

As per the corporate model, corporate employees enrolled by their employers can utilise the benefits of the pension system. To do so, they must be Indian citizens between the age of 18 and 60 years, fulfilling the KYC requirements.

The model applies to the entities listed below.

• Registered as per the Companies Act.
• Registered under different Co-Operative Acts.
• Identified as Central or Public Sector Enterprises.
• Identified as a proprietary concern.
• Registered as partnership firms or LLPs.
• Incorporated by an order from a State or Central Government.
• Identified as a society or a trust.
• All citizens model of NPS
• All citizens of India meeting the following eligibility criteria can voluntarily opt for enrolment and contribute to the NPS pension scheme towards their retirement security.
• He/she should be between 18 and 60 years of age on the date of applying to a PoP service provider.
• He/she should fulfil the KYC requirements as required in the Subscriber Registration Form and submit all necessary documents.