Planning for retirement is essential for a financially comfortable life in the older years when your source of income stops. If you have created a retirement fund you can use it to fund your retirement. The National Pension Scheme is one such retirement oriented pension scheme which has been launched by the Government to help you plan your retirement.
The National Pension System (NPS) is a long term saving scheme which allows you to save regularly and accumulate a considerable retirement corpus. The scheme invests your savings in market-linked funds which help you create an inflation adjusted corpus for your retired years. There are two types of NPS accounts which you can invest into when you subscribe for the scheme – Tier I Account and Tier II Account. Tier I Account is compulsory while Tier II Account is voluntary. Being a mandatory account, it offers you various benefits and also has different funds for investments.
Tier I NPS Account is the primary account and if you want to subscribe to the NPS scheme, you have to open this account in your name. Given below are the salient features of the account which you should know –
To open a NPS Tier I Account the following eligibility conditions have to be fulfilled –
You can withdraw from the account partially if you need funds. There are NPS Tier I withdrawal rules which should fulfil before the withdrawal would be allowed. These rules are as follows –
If you want to exit from the scheme and close the account altogether, it would be called premature closure. When you do such a closure, you can withdraw 20% of the corpus in lump sum while 80% would be used to pay annuities. However, if the accumulated corpus on such closure is below Rs.1 lakh, the entire corpus would be paid in lump sum.
As mentioned earlier, you get tax benefits by investing in a Tier I Account of the NPS scheme. These benefits are as follows –
When you invest in the NPS Tier I Account, you are presented with a choice of two investment strategies – Active Choice Strategy and Auto Choice Strategy. The Active Choice strategy is when you invest in a choice of investment funds while under the Auto Choice strategy, the investment is allocated to funds in a predetermined ratio depending on your risk profile. The investment funds available under the NPS scheme are as follows –
Moreover, there are eight pension fund managers and you can choose anyone for managing your investments. These fund managers are registered with the PFRDA and include the following –
You can also switch between the available investment funds as well as investment strategy when you want. Based on the performance of the underlying assets, your investments would grow and you would earn a return.
As mentioned earlier, the NPS scheme matures when you attain 60 years of age. You can also defer the vesting age to 70. Upon maturity, you can withdraw 60% of the corpus in lump sum. From the remaining 40% of the corpus, you get lifetime annuities at a guaranteed rate. There are different types of annuity pay-out options which you can choose from and also the annuity payment frequency. You can also avail a joint life annuity and include your spouse to continue receiving the annuity post your death.
The NPS Tier I Account, therefore, gives you an opportunity to invest in a market-linked