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National Pension System - NPS or Retirement Plan

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NPS or Retirement Plan

NPS is a savings scheme introduced by the Indian government that makes saving for your retirement years mandatory. There are various levels under which the investments are made.

 

The retirement days are considered to the golden days in a person's life where he or she only sits back and enjoys without having to care about the worldly problems. However, this idealistic situation can only be achieved if the person is financially well-off, as unfortunately most of life's problems stem out of an empty bank account! So if you want your retirement days to be hassle-free, you need to take some steps today. For starters, you must begin to save for the time when your monthly income will get discontinued. There are a number of ways in which this can be done and the two most potent tools are the National Pension System and the retirement insurance plans. Before you choose your saving platform, make sure you understand both these tools well.

What is the National Pension System?


The National Pension System (NPS) is a savings scheme introduced by the Indian government that makes saving for your retirement years mandatory. There are various levels under which the investments are made. First, if you are an employee of the Indian government, you will automatically become a part of the NPS. There will be equal amounts of contribution each month from you and the government and the total amount will be deposited in your pension fund. The fund will continue to build till you retire, after which you will be entitled to the benefits. Even if you switch jobs (within the government sector) or change your location, the pension fund will remain functional.

All other non-government employees, who are Indian citizens between the ages of 18 and 55, can join the NPS. However, for such an employee, the government will make no contribution.

What are retirement plans?


Retirement plans are endowment policies sold by insurance companies. Here, a policyholder invests a large amount, either in lump sum or over a period of time and then after retirement, gets a monthly income from the fund he/she has built up. There are many different types of retirement plans such as immediate annuity plans, deferred annuity plans, life annuity plans and so on.

The differences between the NPS and a retirement plan

NPS

Retirement Plan

Coverage

Life-long pension coverage for the person.

Coverage till a fixed age.

Withdrawal

After the age of 60, the person can withdraw 60% of the fund value. The remaining 40% has to be invested in an annuity plan.

1/3rd of the fund value can be withdrawn at the time of retirement and the rest has to be invested in an annuity plan.

Deposit norms

A minimum of Rs.500 has to be deposited every month and a minimum of Rs.6,000 has to be deposited annually.

Usually no fixed cap on the investment amount. If the policyholder has a lump sum amount in hand, he/she can invest it at any time.


 
What should I opt for?


If you are a government employee, then you would automatically have a pension fund. Most private employees have one as well. However, if you have the resources, it is always advisable to buy a retirement plan as well, as that would provide you with an extra cover. Start saving early and you could benefit heavily by the time you retire.

 

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