Pension plans establish a much needed financial safety and security net during old age when there is no regular source of income. Retirement plans ensure that you live with dignity without compromising your standard of living during the life’s last phases. According to the United Nations Population Division, World Life expectancy is estimated to touch above 76 years by 2050 from the current level of 72 years.
Factors like the rise in cost of living, inflation, and increased life expectancy makes it all the more essential to plan early for one’s retirement. In 2004, the government of India introduced the National Pension Scheme, for government sector employees, that later got extended to all the citizens employed in organised and unorganised sectors. The government’s rationale behind the introduction of the NPS were part of the long pending pension reforms owing to the following considerations:
- The old pension system covered only 12 percent of the formal workforce, and it reflected an absence of a country-wide social security system and a greater need for a wider pension coverage.
- By 2050, the number of people over 60 is expected to soar from the current 8 percent of total to 20 percent of the entire population. The long term problems of ageing populations and social change, that included a breakdown of traditional family support for old age income security are key considerations for pension reforms in private and unorganised sectors.
- Fiscal stress on the public exchequer caused due to the old pension system that distributed defined benefits to the government employees was also a key factor for pension reforms in the organised public sector.
With a genuine intention to provide a social security net to all its citizens working in the organised and unorganised sectors, and ease fiscal stress on the economy, this social sector initiative by the Central Government encourages people to invest in a pension account at regular intervals during their course of employment. At the end of its maturity period when the subscriber turns 6o, he shall be entitled to 60 percent of the accumulated corpus in lump sum pay out, with the rest of the 40 percent invested in an annuity plan for regular monthly pension pay out, as long as he survives post retirement. NPS is of utmost value for anyone who’s employed in the private sector and needs a steady pension after retirement. The Pension Fund Regulatory and Development Authority (PFRDA), the regulator of the National Pension Scheme has made it open to all citizens on a voluntary basis, and the subscribers are entitled to the following NPS benefits:
- Well Regulated: NPS is regulated by PFRDA , with transparent investment norms, regular supervision and performance review of fund managers by the NPS trust. The account maintenance costs are the lowest when compared with similar pension plans in the world. The costs matter a lot when saving for retirement since the charges can potentially eat into your pension savings corpus.
- Flexibility: NPS offers several investment options and choice of pension funds that can drive the growth of investments in a systematic manner. The subscriber can switch between fund managers and investment options while monitoring the growth of the pension corpus. NPS on Finserv MARKETS brings to you a host of investment options and fund managers with a flexible switch option to choose between several investment plans and fund managers.
- Scalability: The invested amount in NPS grows over a period of time with compounding effect. The low account charges and compounding effect eventually benefit the subscriber with a large accumulation of pension wealth.
- Portability: The NPS provided a portability feature, a hassle-free arrangement for individual subscribers while they move between multiple jobs and locations without leaving behind any corpus built thus far.
- Accessibility: The NPS account can be managed online. An NPS account can be opened through its e-portal, eNPS, as well as through online platforms such as Finserv MARKETS. At Finserv MARKETS, opening an NPS account is easy and completely paperless and you can also distribute your investment choices by selecting between Auto or Active choice options. The Active choice option requires you to mention the percentage distribution between various asset classes -government securities, corporate bonds and equities.
- Tax Benefits: The employer and employee can both claim a deduction of up to Rs.1.5 lakhs under NPS-Tier I account for their individual NPS contributions in a given financial year. Section 80CCD (1) covers self-contribution as part of Section 80C, and the maximum deduction that can be claimed is 10 percent of salary. For self-employed, it is 20 percent of the gross income. An extra self-contribution amount of up to Rs. 50,000 can be claimed as a tax benefit under section 80CCD(1B).
In toto, the NPS allows a tax deduction limit of up to Rs. 2 lakhs.
If you are someone with a reasonable risk appetite and your investment goal is to save up for your post retirement life, then there is clearly no better pension plan than the National Pension Scheme. If you think researching and finalising the funds is too much work, Finserv MARKETS solves your problem by handpicking a range of top-performing funds and investment options from best fund managers.
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