NPS: Types, Benefits & Eligibility Guide

Planning for retirement is very important to ensure financial security in later years. The National Pension Scheme (NPS) is a government-backed scheme to assist individuals in saving for their retirement in a structured and tax-efficient manner. This blog explores the key aspects of the NPS scheme, including its types, benefits, eligibility for NPS, and more.

What is the National Pension Scheme (NPS)?

NPS is a voluntary retirement savings plan available to all Indian citizens. The central government introduced it to provide financial security during retirement.

Types of NPS accounts

NPS has a structured approach with two types of accounts:

• Tier-I account: It is mandatory for all NPS subscribers, primarily for retirement savings. Here, withdrawals are restricted as per exit rules. The minimum initial contribution is ₹500. Additionally, you must deposit ₹1,000 annually to keep the account active.
• Tier-II account: It is an optional account with flexible withdrawals. Although it has no minimum balance requirement, you must maintain an active Tier-I account. You will require a minimum contribution of ₹250 to open.

Objectives of the National Pension System

The NPS was launched with the specific goal of providing a reliable pension system for Indian citizens.

Features of NPS (National Pension Scheme)

Some of the features of NPS are:

• Low-cost structure
• Investments in multiple asset classes
• Flexibility to choose fund managers
• Tax-saving benefits

Benefits of National Pension Scheme

The following are the benefits of National Pension Scheme:

1. It encourages disciplined savings for the future.
2. Tax benefits under Sections 80CCD(1) and 80CCD(1B).
3. Higher growth potential compared to traditional pension plans.

Who should invest in NPS?

NPS is suitable for:

• Salaried employees
• Self-employed professionals
• Individuals in private-sector jobs

National Pension System eligibility

Any Indian citizen/Overseas Citizen of India (OCI)/NRI aged 18-70 can enrol in NPS.

How to open an NPS account?

To open an online National Pension Scheme account, you need to follow the steps:

1. Visit the official e-NPS portal.
2. Click on “Open NPS Account” and select individual/corporate.
3. Provide Aadhaar/PAN details for verification.
4. Choose a fund manager and investment mode.
5. Make the minimum contribution and generate a PRAN (Permanent Retirement Account Number).

How to open an NPS account offline?

To open your NPS account offline, you need to follow these steps:

1. Visit a Point of Presence (POP) such as a bank or financial institution.
2. Fill out the NPS registration form and submit KYC documents.
3. Choose your investment preference and fund manager.
4. Make the first contribution and receive your PRAN card.

How to login to your National Pension Scheme account?

After NPS online registration, you can visit the official NPS website. There, click on “Login” and enter your PRAN and password. Access account details and transactions and make contributions online.

How is NPS calculated?

NPS returns depend on contribution amount, duration, asset allocation and market performance. The pension calculator helps estimate future pension benefits based on these factors.

National Pension Scheme (NPS) interest rate

The NPS scheme is market-linked and does not have a fixed interest rate. Returns vary based on the chosen asset allocation:

• Equity (E)
• Corporate bonds (C)
• Government bonds (G)

NPS and other tax-saving instruments

Here is a comparison of the NPS and other tax-saving instruments:

How to use NPS withdrawal money?

Upon retirement, you can:

• Withdraw up to 60% as a lump sum (tax-free).
• Invest at least 40% in an annuity plan to receive regular pension income.
• Opt for phased withdrawals as per financial needs.

FAQs

1. Can I open an NPS account online?

Yes, through the e-NPS portal with Aadhaar or PAN.

2. How does NPS provide tax benefits?

Investments are eligible for deductions up to ₹2 lakh under various tax sections.

3. What asset classes are available under NPS?

The asset classes available are Equity (E), Corporate Bonds (C), Government Bonds (G), and Alternative Assets (A).

Conclusion

The National Pension Scheme (NPS) is a great option for those seeking to secure retirement with market-linked returns, tax benefits and flexible investment options. Whether you are a salaried employee, self-employed, or an NRI, NPS offers a well-regulated and cost-effective solution to ensure financial stability post-retirement.

In addition to securing retirement savings, individuals should consider investing in health insurance plans to cover medical expenses. Having a suitable health insurance policy ensures financial protection against unexpected healthcare costs. Senior citizen health insurance can be particularly beneficial for individuals above 60+, as it provides coverage tailored to age-related medical needs.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is not intended as a substitute for professional advice, diagnosis, or treatment. Please consult your general physician or another certified medical professional for any questions regarding a medical condition. Relying on any information provided in this blog is solely at your own risk, and ICICI Lombard is not responsible for any effects or consequences resulting from the use of the information shared.