National Pension Scheme Detailed Guide - NPS Registration, Contributions and Apply Online

Planning for a comfortable retirement is essential to maintaining your standard of living after you stop earning. With inflation rising each year, solely depending on savings may not be enough. That is where a retirement income like the National Pension Scheme (NPS) helps. It allows you to systematically invest during your working years and receive a part of your corpus as a pension every month post-retirement.

Read below to find out how retired individuals can receive a Rs 30,000 monthly pension under the National Pension Scheme.

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What Is The National Pension Scheme?

The National Pension Scheme (NPS) is a government-backed retirement savings scheme designed to provide financial security to Indian citizens, especially after retirement. Initially launched in 2004 for government employees, the scheme was later extended to all Indian citizens in 2009. Managed by the National Pension System Trust (NPS Trust), the govt scheme encourages individuals to contribute towards their pension account during their working years, with the accumulated funds providing a stable income post-retirement.

Key aspects of the NPS include

• NPS Contribution: During employment, individuals cannot make regular deposits. NPS loans are only given to those who use NPS borrowing that will be invested in specific financial instruments including government bonds equities and corporate debt.

• NPS Account: The contribution remitted is maintained in the individual’s NPS account and the system accommodates Tier 1 (compulsory) and Tier 2 (optional deposits) or ‘savings’ accounts.

• NPS Calculator: The NPS-Pension calculator aids individuals evaluate the pension that will be available for them based on the amount contributed and retirement age as well as the growth of investment.

• Tax Benefits: Some tax advantages relating to NPS can be most appreciated under the Income Tax Act of 1961 under section 80C as well as 80CCD.

It is a low-risk investment option regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and aims to promote a culture of saving and ensure a financially secure retirement for all.

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Objective Of The National Pension Scheme (NPS)

The National Pension Scheme (NPS) is one of the programs commenced primarily to ensure overall financial stability and security in old age. It is also known as an Old Age-Dependent Income Arrangement and motivates people to put aside a fixed percentage of their earnings, throughout their lives, for their irregular earnings years. The key objectives of this government scheme include:

• Ensuring a Regular Income After Retirement: The aim of NPS is to ensure that when a person retires, he or she can receive a monthly pension at regular periods, thus, enabling them to be financially independent throughout their retired life.

• Encouraging Saving for the Future: The govt scheme seeks to nurture the culture of saving for the future among the population which compels the citizen to continuously contribute over his or her working age to have a reasonable amount as retirement benefits.

• Wider Reach: It was first introduced for government employees and then after a while was opened up for all Indians including private employees and self-employed individuals to achieve financial inclusion.

• Convenient and Transparent: The scheme provides convenience since there is a choice in investing and transparency in the management of the funds as one is free to choose fund managers and investment alternatives that suit him or her depending on his/her risk profile.

• Tax Benefits: The provision of NPS came with enormous tax advantages such as those provided in the 80C tax sections and 80CCD which makes individuals want to create retirement plans as one will be entitled to tax relief on the savings income.

The National Pension Scheme is vital in improving the country’s retirement planning by providing a reason for citizens to plan for a secure financial future.

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Features Of The National Pension Scheme (NPS)

The National Pension Scheme (NPS) has numerous features that make it a widely accepted and efficient pension saving scheme for all ages and classes. Among them are the following:

• Voluntary Participation: NPS allows people in employment or self-employed to subscribe to it voluntarily and save for retirement which is open to all Indian citizens.

• Investment Strategies: NPS allows the selection of the fund managers and the investment options to be made. Subscribers have a choice according to their risk need on the type of asset class to be invested in such as equities, and government or corporate bonds.

• Cheap Alternative: NPS is increasingly gaining popularity because of the relatively lower fund management charges which offer great long-term returns on the investment as compared to any other pension schemes.

• Portability: The NPS account is portable meaning a subscriber can keep on making contributions to the same account even when changing jobs, moving from one city to another, or shifting from one sector of employment to another (for instance, from government to private sector).

• Tax Incentives: Contribution to NPS is entitled to tax benefits under the Income Tax Act, 1961 Section 80C & 80CCD. Further Deduction of INR 50000 is granted under Section 80CCD (1B), investing in a low-risk one.

• Regular Pension and Lump Sum Withdrawal: At the time of retirement, the subscribers can take a lump sum not exceeding 60% of the accumulated corpus and the balance of 40% has to be used for purchasing an annuity so that a fixed amount is available in regular intervals after retirement.

• Partial Withdrawals: After 3 years of being with the scheme, there are reasons like medical treatment or buying a house where partial withdrawal is permitted from NPS.

• Auto and Active Choice: There is a choice given to the subscribers to actively manage their proportions of asset allocation or the system automatically invests as per the age of the member (Auto Choice).

• Transparent and Regulated: NPS has the Apramis Management as custodians of pension fund management and it is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) which is an apex body overseeing such pension funds.

These features and benefits of the NPS pension scheme therefore enhance its attractiveness as a method of saving for one’s retirement with a lot of flexibility, tax effectiveness as well and guaranteed income after retirement.

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Benefits Of Investing Through National Pension Scheme

Some key advantages of accumulating your retirement corpus through NPS are:

• Low Cost: NPS has relatively low fund management charges. Most of the assets are actively managed in-house.

• Tax Benefits: You can claim a tax deduction of up to Rs. 50,000 under Section 80C on your annual contributions. Partial withdrawal at retirement also enjoys tax exemption.

• Government Support: For Central Government employees, there is an additional yearly contribution of 14% of pay by the employer.

• Professional Management: Your money is managed by professional fund managers offering pre-defined investment schemes matching your risk profile and goals.

• Lifetime Pension: The NPS guarantees you a regular pension for life post-retirement, ensuring financial security even in old age.

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Eligibility Of The National Pension Scheme (NPS)

The National Pension Scheme (NPS) is designed to cater to the needs of Indian citizens who wish to plan their retirement systematically. The eligibility criteria to join the NPS are as follows:

Citizenship

• Participation in NPS is restricted to only Indian citizens, which also includes NRIs.

Age Limit

• Anyone from age 18 and above and less than 70 can open an NPS account.

• The scheme does not allow registration of subscribers below 18 years of age and those whose age exceeds 70 years.

Employment Type

• Public and Private salaried individuals are eligible.

• Persons doing self-employment or working in the informal economy can join the NPS too.

KYC Compliance

• One of the criteria that should be fulfilled is that the applicant's KYC must be filled with supporting documents that include but are not limited to a form of identification and proof of address.

Existing Account

• The applicants should preferably not have more than one NPS account as the govt scheme permits one holder one NPS account only.

With these criteria, the NPS has been made available to almost all kinds of people, allowing them to have a well-organized pension fund in place for their post-retirement life.

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Documents Required For National Pension Scheme (NPS)

To open an NPS account, individuals must submit certain documents for KYC compliance and identity verification. Below is a list of the required documents:

Identity Proof (Any one of the following)

• Aadhaar Card

• Passport

• Voter ID Card

• PAN Card

• Driving License

Address Proof (Any one of the following)

• Aadhaar Card

• Utility bills (not older than 3 months)

• Passport

• Ration Card

• Voter ID Card

• Driving License

Age Proof (if not mentioned in identity proof)

• Birth Certificate

• Class 10 Certificate

• Passport

Bank Account Details

• Cancelled cheque for linking the NPS account to your savings account.

Photographs

• Recent passport-size photograph for account opening.

NPS Registration Form

• Properly filled NPS subscriber form as per the instructions provided during the application.

These documents are essential to complete the registration process for NPS and ensure proper validation under the guidelines of the Pension Fund Regulatory and Development Authority (PFRDA).

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Types Of NPS Accounts

Here is the information on the Types of NPS Accounts that an employed person can open

These two account types offer flexibility for individuals looking to save for retirement, with Tier-I focused on long-term retirement savings and Tier-II providing additional liquidity and investment options.

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Returns Of National Pension Scheme (NPS)

The National Pension Scheme is characterised by the fact the returns earned are based on market orientation. That means the returns earned will be based on where the funds are invested. The returns are not guaranteed; however, statistics have shown that the NPS has been competitive relative to other long-term investment offers.

Here is the data on Best Performing NPS Tier-I and Tier-II Returns 2024 presented in table format for Scheme G, Scheme C, and Scheme A:

Best Performing NPS Tier-I and Tier-II Returns 2024 - Scheme G (as of 15th Dec 2023)

Best Performing NPS Tier-I and Tier-II Returns 2024 - Scheme C (as of 15th Dec 2023)

Best Performing NPS Tier-I Returns 2024 - Scheme A (as of 15th Dec 2023)

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How To Apply For National Pension Scheme (NPS)

Applying for the National Pension Scheme (NPS) is simple and can be done both online and offline. The steps vary based on the method you choose, but here's a clear guide for both:

Online Application (eNPS)

Visit the eNPS Portal:

• Log on to the official eNPS portal by visiting https://enps.nsdl.com/.

Registration:

• Select New Registration.

• Provide your Aadhaar or PAN card details. Your Aadhaar must be linked with your mobile number for OTP verification.

Enter Personal Details:

• After verifying your Aadhaar, fill out personal, contact, and bank details.

Select Pension Fund Manager and Scheme:

• Choose your Pension Fund Manager (PFM) and investment option (Active or Auto).

Make Initial Contribution:

• Make a minimum contribution of ₹500 to complete the registration process.

Generate PRAN:

• On successful registration, a Permanent Retirement Account Number (PRAN) will be generated. You can download your PRAN card online.

Offline Application

Visit a POP-SP (Point of Presence - Service Provider):

• You can visit your nearest bank or any authorised NPS POP-SP.

Fill Out the Registration Form:

• Obtain the NPS application form from the bank or download it from the NPS website.

Submit the Documents:

• Submit your KYC documents (Aadhaar, PAN, bank details) and the filled application form to the POP-SP.

Make Initial Contribution:

• Make the first minimum contribution of ₹500.

Receive PRAN:

• After successful registration, your PRAN will be sent to you by post.

Both methods allow you to monitor and manage your NPS account easily. Online mode offers a quicker and more convenient way to apply and manage your investments.

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How To log into the NPS Account

Logging into your National Pension Scheme (NPS) account is simple and can be done through the NSDL or Karvy platforms. Here are the steps to access your NPS account online:

Step-by-Step Process

Visit the Official Website:

• Go to the NSDL NPS portal at https://cra-nsdl.com or Karvy NPS at https://nps.karvy.com.

Click on 'Login':

• On the homepage, click on the 'Login' button, and select the option for Subscriber Login.

Enter PRAN and Password:

• Enter your Permanent Retirement Account Number (PRAN) and the password that was provided at the time of registration.

Captcha Verification:

• Enter the captcha code as shown and click on the 'Submit' button.

Access Your Account:

• Once logged in, you can view your account balance, and contribution details, and manage other aspects of your NPS account.

If you have forgotten your password, there is an option to reset it by clicking on 'Forgot Password' and following the instructions.

Tax Benefit On NPS

These tax benefits make the National Pension Scheme (NPS) an efficient tax-saving tool and an attractive option for long-term retirement planning.

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National Pension Scheme Calculation

It is essential to comprehend the contribution structure and how it relates to the National Pension Scheme when calculating returns under this scheme. NPS provides a long-term basis for retirement planning since, throughout these investments, the market returns on equity, government bonds, and corporate bonds grow.

Here’s a step-by-step breakdown of how to calculate your NPS returns:

Steps To Calculate NPS Returns:

Determine Your Monthly Contribution:

• You may make either one-time-only contributions or recurring contributions on a monthly or annual basis into your Tier I NPS account. If you decide to invest ₹5,000 every month, then this will be your basic investment.

Choose an Expected Rate of Return:

• Influencing factors such as your equity allocation (which has higher risks and higher returns), government bonds, and corporate bonds will impact how much return on investment is for the NPS investments since it is linked to the market.

• If this is not possible then for a lower bound estimate, you might take 8%-10% per annum on average.

Period of Investment:

• The more time you remain invested in NPS, the higher the compounding benefit you receive. Starting that investment when that individual is 30 years old and stopping at the age of 60 gives that individual 30 years to invest consistently.

The formula for Calculation: The NPS follows the compounding formula:

A=P×(1+r/n​)nt

Where:

• A = Amount at maturity

• P = Monthly contribution

• r = Expected annual rate of return (expressed as a decimal, so 10% is 0.10)

• n = Number of times the interest is compounded annually (in most cases for NPS, it’s annually so n=1n=1n=1)

• t = Number of years

Annuity Purchase:

• On reaching the age of 60, you can withdraw 60% of the corpus tax-free, while 40% of it must be used to purchase an annuity for your pension. The annuity provides a monthly pension post-retirement.

Example Calculation:

• Monthly Contribution (P): ₹5,000

• Annual Return (r): 8% (0.08)

• Years of Investment (t): 30 years

Using the formula, you can compute the maturity amount. You can also use online NPS calculators offered by major banks like SBI or ICICI for easy calculations.

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Estimated Contribution Required To Benefit From National Pension Scheme

Let's calculate the approximate monthly contribution needed to achieve a Rs. 30,000 pension through NPS:

• Start investing at age 21 and continue until retirement at age 60 (a contribution period of 39 years).

• Contribute Rs. 2,650 every month.

• Assume an annual return of 10% on investments.

• Exit at 60 years, with 60% of the corpus as a lump sum and the remaining 40% as a pension.

By investing Rs. 2,650 monthly for 39 years at an expected return of 10%, one would accumulate a total corpus of around Rs. 1.52 crore by 60 years of age.

On exiting NPS, 60% of Rs. 1.52 crore (Rs. 91.59 lakh) can be withdrawn as a lump sum, and the rest 40% (also Rs. 91.59 lakh) will be used to purchase an annuity, which will provide a monthly pension.

Assuming a conservative annuity return of 6%, this would generate a lifetime monthly pension of Rs. 30,533, which is close to the target of the target of Rs. 30,000.

Conclusion

Overall, through disciplined investments in NPS, one can easily achieve the target of Rs. 30,000 in regular monthly income to support retirement. It is one of the most tax-efficient instruments, providing both accumulation and post-retirement financial security.

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Important Links

Official website: https://enps.nsdl.com/eNPS/NationalPensionSystem.html