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How does National Pension Scheme India work?

According to the United Nations Population Division, World's life expectancy is expected to reach 75 years by 2050 from the present level of 65 years. The better health and sanitation conditions in India have increased the lifespan. As a result, the number of post-retirement years has increased.

Retirement planning has become an essential part of one's life owing to the increased life expectancy and cost of living. The Government of India started the National Pension System under the Pension Fund Regulatory and Development Authority (PFRDA) to take the citizens under the affordable social security scheme. NPS is a low cost, tax efficient, flexible and portable Scheme. Employees and employers both contribute to the scheme. The wealth generated from the scheme depends on the investment growth derived from the contributions made. Consequently, the greater the value of contributions, the greater the investment achieved.

There are three types of accounts under the National Pension Scheme:

Tier 1- A non-withdrawable retirement account which can be withdrawn upon meeting the exit conditions prescribed under NPS. A subscriber has to contribute a minimum of Rs 6000 in a financial year for a Tier 1 account to refrain the account being frozen.

Tier 2- A subscriber can deposit as well as withdraw from this account as per the convenience. However, it is an add-on to the Tier 1 account. One must have a Tier 1 account in order to have a Tier 2 account. The minimum contribution required in Tier II is Rs 2000 in a financial year.

Swavalamban Account- The Indian Government contributes a sum of Rs 1000 every year over the initial four years.

An individual is required to appoint a nominee at the time of opening NPS account. One can appoint up to 3 nominees for NPS Tier 1 and Tier 2 account. You are allowed to change the nominees in the NPS account after obtaining the PRAN. Permanent Retirement Account Number is a twelve digit unique number.


Who can join the scheme?

Any citizen of India, resident or non-resident is allowed to join the scheme. Individuals aged between 18-60 years are allowed to participate in the scheme. Citizens can join the scheme as individuals and employer-employee groups after the KYC procedure. A Non-resident Indian can open an NPS account. The contributions made by NRI are subject to regularised by RBI and FEMA. Also, one can invest in NPS despite their contribution to the provident fund.

How and where can you open an NPS account?

NPS is distributed through the authorized entities called Point of Presence(POP's). Almost all banks and select financial institutions act as the point of presence to enter into the NPS architecture. These POP assists the subscriber open an account and fill up the necessary forms. The location of these POPs can be accessed through the website of PFRDA. Multiple NPS accounts are not allowed for a single individual.


What are the documents required to be submitted for opening an NPS account?

The following documents are required to be submitted for opening of an NPS account

Proof of Identity

Proof of Address

Proof of date of birth

Subscriber registration form

How is the NPS scheme portable?

The account of NPS can be operated from anywhere in the country. If you take an employment from private sector to public or if you take an employment under the central government or state government, the account will be the same. A subscriber can shift from one POP to another POP. Moreover, if an individual becomes self-employed after leaving the employment, the account will be the same.


How are the funds contributed managed under NPS?

There are 8 pension fund managers managing the funds at the option of the subscriber.

ICICI Prudential Pension Fund

LIC Pension Fund

Kotak Mahindra Pension Fund

Reliance Capital pension Fund

SBI pension Fund

UTI Retirement solutions Pension fund

HDFC pension management company

DSP Blackrock Pension Fund managers



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