The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme that offers a range of investment options to its subscribers. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and aims to provide financial security to the citizens of India in their old age.
However, some of the states in India have opted out of the NPS, citing various reasons such as lack of autonomy, high administrative costs, and low returns. These states include Rajasthan, Chhattisgarh, Himachal Pradesh, Kerala, West Bengal, and Jharkhand. The employees of these states are now covered by the old pension scheme, which is a defined benefit scheme that guarantees a fixed amount of pension after retirement.
What happens to the corpus of the employees who have opted out of NPS?
According to the PFRDA chairman Dipak Mohanty, the employees of the states that have opted out of NPS will continue to earn returns on the corpus that is under the contributory pension model. He said that there is no discontinuity in the scheme and the state governments will continue to get the returns on the corpus under NPS .
He also said that the scheme has given “very competitive returns” and is an attractive option for those looking at retirement savings, especially after the regulator allowed systematic withdrawal and retain the corpus up to 75 years .
How does NPS compare with other retirement savings options?
NPS offers several advantages over other retirement savings options such as provident fund, pension fund, and insurance schemes. Some of these advantages are:
- NPS allows subscribers to choose from various asset classes such as equity, corporate bonds, government securities, and alternative investments. This helps them diversify their portfolio and optimize their risk-return profile.
- NPS charges a low fund management fee of 0.01% per annum, which is one of the lowest in the world. This helps subscribers save more on costs and increase their net returns.
- NPS provides tax benefits to subscribers under Section 80C, Section 80CCD(1B), and Section 10(12A) of the Income Tax Act. Subscribers can claim deductions up to Rs 2 lakh per annum on their contributions to NPS.
- NPS allows subscribers to switch between different pension fund managers and asset classes at any time, subject to certain conditions. This gives them flexibility and control over their investments.
- NPS offers multiple withdrawal options to subscribers such as lump sum withdrawal, annuity purchase, or a combination of both. Subscribers can also defer their withdrawal or annuity purchase up to 75 years of age.
NPS is a viable and beneficial retirement savings option for Indian citizens who want to secure their financial future. The scheme offers a range of investment choices, low costs, tax benefits, flexibility, and withdrawal options to its subscribers. The employees of the states that have opted out of NPS will not lose out on their returns as they will continue to earn on their corpus under the contributory pension model. However, they may miss out on the benefits of staying invested in NPS for a longer period.