Post-retirement period is really a threat! A major part of an individual’s income is spent on children’s higher education, marriage and housing loan. Most of the people start thinking about their post-retirement period only when they face it. Now that the life span of an individual has got increased and that several newer diseases have cropped up, it is all the more important that we need to plan our post-retirement period. It may never be possible to depend on our children for our excess and extra medical expenses once we are out of service. Hence it is imperative that every one of us should have a pension scheme of our own so that the evening of our life will be fairly smooth.
Prior to 2004, employees’ retirement schemes were directly handled by the Government and the concerned establishments. In 2004 the National Pension System (NPS) was brought into force. In this scheme, an individual has to enrol and save money for his retirement benefit. Already 2 crores of people have enrolled in this NPS and it is likely to be 40% more in the next year. Financial expert and consultant, V.Sankar explains that the management of post-retirement period is incomplete without saving for that period right from now. The precise reason that he gives for this is that the average life period has increased in the recent times.
Comparative Statement of Income from NPS:
Pension Plans 1 Year 3 years 5 years Value of
Wealth (in cr.)
Central Govt. Plans
LIC Pension Fund 6.78 8.06 9.69 25,089
SBI Pension Fund 6.70 8.22 9.45 29,334
UTI Retirement Solutions 7.36 8.43 9.65 27,516
State Govt. Plans
LIC Pension Fund 6.69 8.07 9.74 35,481
SBI Pension Fund 6.53 8.25 9.52 37,740
UTI Retirement Solutions 7.09 8.36 9.57 36,755
NPS Light (Swalamban) Plans
Kotak Pension Fund 7.40 8.23 9.65 46
LIC Pension Fund 6.94 8.11 9.82 836
SBI Pension Fund 6.84 8.24 9.56 1,235
UTI Retirement Solutions 7.53 8.25 9.59 838
LIC Pension Fund 6.38 7.96 - 2,417
SBI Pension Fund 6.64 8.28 - 11,628
Atal Pension Plan
LIC Pension Fund – NPS 6.41 - - 1,075
SBI Pension Fund – NPS 6.62 - - 1,172
UTI Retirement Solutions 6.68 - - 1,137
Retirement plans are more important because of increasing inflation and cost of medical expenses. If retirement plans are started earlier, the greater will be the benefits. If a person prudently converts the maturity amounts into annuities after his retirement, he can lead a comfortable life like pre retirement.
Who can join NPS ?:-
Any citizen of India – either living in India or abroad
In the age group between 18 and 65 years
Submission of KYC details in the prescribed form
Other enclosures like address and id proof, date of birth certificate, PAN number and bank details need to be submitted
With the above documents, one can start the NPS account
Where to start?:-
One can start in post offices, UTI Mutual Fund, CAMS, leading Private and Public sector banks. The prescribed form needs to be filled and submitted to start the account.
Comparative Statement of NPS Returns
Pension Plan 1 Yr 3 Yrs 5 Yrs Value of
Tyre 1: Equity Plans
HDFC Pension Fund * 21.12 8.51 - 919
ICICI Prudential Pension Fund 18.38 7.43 14.04 870
Kotak Pension Fund 20.56 8.45 14.16 167
LIC Pension Fund # 17.68 7.04 - 320
Reliance Capital Pension Fund 19.17 7.19 13.49 81
SBI Pension Fund 18.79 7.70 14.10 1,576
UTI Retirement Solutions * 20.75 9.00 14.87 205
Tyre 1: Govt.Bond Plans
HDFC Pension Fund 4.07 7.11 - 684
ICICI Prudential Fund 4.49 7.30 8.64 610
Kotak Pension Fund 4.06 7.57 8.40 134
LIC Pension Fund # 4.72 7.80 - 262
Reliance Capital Pension Fund 4.36 7.44 8.38 73
SBI Pension Fund 4.58 7,43 8.43 1,695
UTI Retirement Solutions * 3.67 6.95 8.03 173
Returns as on 14.02.18 – Value of wealth as on 31.01.18
# Value of wealth based on 31.12.17
*NAV based on 13.06.17
NPS through on-line mode:-
Using Aadhar ID facility, one can easily start the NPS through on-line mode.
(https://enps.nsdl.com/eNPS/NationalPensionSystem.html) The requirements are personal mobile number, e-mail id, bank account with net banking access, recent photographs and digital signature uploading. Our personal ID details will be confirmed with the help of Aadhar or PAN Number particulars and the NPS account will be immediately allotted. The initial amount in this mode is Rs.500/- only.
Permanent Retirement Account Number (PRAN): A 17-digit permanent retirement account number will be given immediately upon starting the NPS account. Only one number will be given to an individual account holder. The account can be operated from anywhere in India. A card carrying this number will be sent to the account holder within 20 days from the commencement of this account.
Modus Operandi of NPS:-
There are two types of account, viz. Tier 1 and Tier 2 in the NPS plan. Tier 1 is primary and it must be first opened to start the NPS. The amount remitted in this account is eligible for IT exemption. There is no upper limit for payment in this type. However, there are some stipulations for withdrawing this amount.
Tire 2 is just an extension of Tier 1 account. One can save any amount of money in this type and withdrawal has no restriction whatsoever. Only negative feature in this type is that there is no IT exemption for the money invested in this type.
Mode of payment in this plan is allowed through cash, cheque, demand draft or ECS including net banking through E-NPS, debit and credit card etc.
Particulars Tier-1 Tier-2
Minimum amount required:
for starting the account 500 1,000
Minimum transaction value 500 250
Minimum saving per year 1,000 -
Minimum operation yearly once -
Details of investment:-
As regards Tier 1, we must invest with a minimum amount of Rs.500/- and in a year, we must invest a sum of Rs.1,000/- after all charges. There is no upper amount restriction. However, we must operate the account atleast once a year. In the event of failure to save a sum of Rs.1,000/- per year, the account will be put on hold and all services will be blocked. There will be a penalty amount of Rs.500/- for renewal of account.
In the case of Tier 2, the minimum amount to start the account is Rs.1,000/- and subsequent amounts to be saved should not be less than Rs.250/- However, there is no minimum or maximum amount to be saved in this type.
While explaining the salient features of the NPS plan, Mr.Ravichandran, AGM of Integrated Enterprises explains that the NPS is purely meant for one’s post-retirement period. Accordingly, one should necessarily take his present age and the ability to take risk into consideration before investing in NPS. The investment will be decided as either Active Choice or Auto Choice based on one’s present age. For the youngsters a high risk choice and for the aged people, a low risk choice will be offered.
Active choice consists of 4 asset classes as under:-
Asset Class E:- This is based on stock market operations. There will be more returns with equal risk.
Asset Class C: This refers to investment in fixed income securities other than that of Govt securities. This will be suitable for middle-income group and the risk is also proportional.
Asset Class G: This refers to investment in Government bonds. This will fetch steady returns.
Asset Class A: This refers to investments in CMPS, MPS, REITS and AIF convertible securities.
It is possible for one to switch from one class to another class of investment. However, it is permitted only once in a financial year. There is a fee for change-over.One can keep his entire pension either in class C or G as the case may be. In Equities, one can keep a maximum of 50% and 5 % in Asset Class A.
Auto Choice Investment:-
This is applicable for those who do not prefer any asset class in Active choice. Depending on their age group, the portfolio investment will be decided upon. Based on the investor’s increasing age, the investment in Asset Class C & G will be increased by proportionately reducing the investment in Asset Class E.
Auto Choice has three types. 1) LC 75 – The investment in this will be aggressive. In this investment, up to 35 years, the investment will be 75% on equities. The investment will be suitably reduced when one’s age increases. 2) LC-50 – The risk involved in this will be average. The investment on equities will be 50% up to the age of 35 and thereafter it will be reduced based on increase in one’s age. 3) LC 25 – This involves only minimum risk in the sense that the investments on equities will be just 25% and it will still be reduced based on increase in one’s age.
If no choice is mentioned in either of the three modes in Auto Choice, LC 50 type will be chosen for executing the investment. NPS investments are made based on the broad guidelines of Retirement Funds Regulatory and Management Board. The investments will be made by expert fund managers in equities, Govt. bonds, institutional securities etc. in a diversified portfolio which will be lucrative. The returns obtained through these investments will be distributed to the individual members.
There is an option to select the funding agencies ourselves. There are now 8 pension funds. Fund managers can be changed once a year.
Pension schemes- a Comparative Statement of returns
Scheme name Return (%)
Sr.Citizens Savings scheme 8.30
Postal Savings scheme 7.30
NPS 9.45 – 14.8
Mutual Fund Pension Plans 11.75
The companies involved in this plan are HDFC Pension Management Company, LIC Pension Fund, ICICI Prudential Pension Fund Management Company, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Funds Private, UTI Retirement Solutions and Birla Sun Life Pension Management .
Withdrawal or closure can be done only upon completion of 60 years. That too, only 60% of the maturity amount can only be withdrawn in bulk. This amount is exempt from income tax. The remaining 40% will be invested in some life insurance annuity scheme from where monthly pension will be arranged to the individual. At the same time, if the whole accumulated amount is less than Rs.2 Lacs, the entire maturity amount can be withdrawn. If preferred by us, the amount can be continued to exist in the same account till the age of 70 during which time, further amounts can also be saved in that amount.
It is also possible for one to come out of the scheme before reaching the age of 60, provided a minimum period of 10 years have lapsed from the date of opening account. In this case, 20% of the maturity amount only will be settled and the balance 80% will be invested in some annuity scheme and it will be given only in the form of monthly pension amount. In case the whole maturity amount is less than Rs.1 L, the entire proceeds can be withdrawn immediately.
If one desires to withdraw the amount after 10 years, it would be possible on any one of the grounds such as, marriage, serious physical ailment of any member of the family, higher education, marriage, first time investment in housing etc. Overall, withdrawal of amount from the NPS scheme is possible only thrice with a gap of 5 years in between. In the event of death of the pensioner, the nominee will be able to claim the entire amount lying with the account. At the same time, there is an option for the nominee to continue the account by submitting necessary KYC forms and other documentary proof.
The mode of investment amount can be changed anytime or the whole amount can be saved. For instance, any additional income, bonus or maturity amount from any other saving can again be invested in this and the account can be continued.
What are the tax benefits?:
Contributions to NPS can be claimed as deduction under Section 80-C subject to a overall limit of 1.50 lacs. There is an additional amount of Rs.50,000/- against investment in Tier 1, under S-80CCD1(B). Therefore, there is a total exemption of Rs. 2 L available under IT Act.
Thus, it is evident that NPS is a very valuable source of saving for our post-retirement period. Particularly, youngsters who join private sector should necessarily start this NPS account. Ideally, people who are in the age group of 25 to 45 should enrol in this; if not, they must do it immediately so as to avoid financial crunch during the post-retirement period.
This is a safe and secure investment:- P Ravikumar
“I am now aged 60 years. I have retired as an Administrative Officer from the DGP office and have been now working as a consultant in a private organization. I have taken the NPS account at my 58th year in order to get tax benefits from my surplus earning apart from my pension. I have so far remitted Rs.50,000/- per year thrice. It is a safe and secure investment for me.”
Hope prevails now:- Sridhar
“I am 45 years now. I treat this as better than the PPF plan. The salient features are minimum guarantee and tax exemption. I have been saving Rs.50,000/- in NPS annually. I do hope that my post-retirement period would be comfortable with this investment.”
Good revenues are quite possible:- Nitin C Sekar
“I am just 26 years old. I am working in a private organization. I have been investing a sum of Rs.500/- per month in NPS since 2013. In addition to this my mother has been investing a sum of Rs.1,000/- per month for the past 15 years. We hope we will get a good return during our retirement period. A friend of ours who has since retired, has received a good return soon after his retirement. It is my sincere opinion that employees who do not have the PF facility in their establishments can opt for this NPS scheme.”
I am a worriless man:- Manickavasagan
“My age is 28 years. I am working in a private company. I just came across NPS when I was searching for a good long-term investment plan, especially for my post-retirement period. Presently, I have been investing a sum of Rs.6,000/- per month in Tier 1 mode. It is true that I am devoid of any worry regarding my earnings after my retirement.”
To conclude, NPS has come to stay. Its benefits to the investors are aplenty. Youngsters should volunteer to embrace this scheme in order to protect their future.
(This article written in Tamil By J Saravanan and Gowthaman for Naanayam Vikatan magazine dt 25/2/18 has been reproduced in English by P.S.Ramamurthy)