Designed as a robust retirement planning tool, the NPS pension system offers individuals a pathway to secure their financial future post-retirement. In this blog, we delve into various aspects of the NPS, from ensuring a steady monthly income to maximizing returns and making informed investment decisions. Join us as we explore the intricacies of the NPS and equip you with the knowledge to make sound financial choices for your golden years.
- How can I ensure monthly income from the NPS pension scheme?
At present, the National Pension Scheme or NPS is the lowest-priced retirement plan that one may opt for in India. Through the program, you can ensure that a monthly payout is credited to your bank account after you reach 60 years of age.
To ensure that you get the NPS pension, you must open a Tier-1 account while you are aged between 18 and 70 years. After account creation, you have to deposit at least Rs. 500 every year to keep the NPS scheme activated. As there is no upper limit for yearly deposits, and as the returns are market-linked, subscribers who avail NPS get greater returns compared to the traditional pension.
Before the scheme matures you must purchase an annuity plan from your NPS provider to start receiving the pension. A minimum of 40% of the corpus has to go towards buying the plan. The remaining 60% you can withdraw and you do not have to pay any tax on this amount.
To learn more about this topic, listen to the podcast on SoundCloud: https://soundcloud.com/nps-ki-pathshala-podcast/s010-nps-pension
- Can I invest Rs. 5000 in NPS?
Yes, for NPS Tier-1 account holders the minimum yearly contribution needs to be Rs. 500. Investing in a Tier-2 account is optional.
Anyone can use an online NPS calculator to evaluate the returns based on different considerations. So, if you contribute Rs. 5000 each month from the age of 25 till you reach 60, then the monthly pension will be Rs. 38,283.
This case will be true if we consider the average annual returns to be 10%. Also, the annuity program has to offer a 6% return so that you achieve the mentioned pension amount.
If you want to know in detail about how much returns you can get by investing Rs.5,000 in NPS every month, listen to this podcast on SoundCloud: https://soundcloud.com/nps-ki-pathshala-podcast/s08-nps-rs-5000-deposit-pension
- Which one is the best NPS pension fund?
Right now 10 NPS pension funds are registered under the PFRDA. You can choose any one of these pension funds depending on your overall tax-saving and investment goals.
To check which one of the pension funds offers the best returns you have to compare their average returns over varying timeframes. Also, you can consider multiple other parameters like the fund’s average SIP return value, percentage of SIP returns or even its total assets. You have to individually find out the top-performing funds under each scheme before finalising where you want to invest.
- What is the NPS pension rule?
The National Pension Scheme or NPS allows every Indian who is aged above 18 to save for their post-retirement life.
After the maturity of the scheme, i.e., when the subscriber reaches 60 years of age, they can extend the tenure of their NPS account for another 10 years. Otherwise, they can opt to withdraw 60% of the corpus as a lump sum and the rest 40% is used as an annuity investment.
With the annuity plan purchased, you can be assured of getting a monthly pension that will be taxable as per the income tax slabs. In case the corpus is less than or equal to Rs.5 Lakhs at the time of maturity then you can redeem the entire amount.
At present, you can select among 7 IRDA-approved annuity service providers. They ensure you get a fixed monthly income for the tenure that you pick. Having said that, an annuitant can choose 5, 10, 15 or 20 years as an option for which they wish to receive a pension. In case a beneficiary who has bought an annuity for life unfortunately dies, their spouse receives 100% of the pension amount.
- Why migrate superannuation funds to NPS?
Superannuation funds refer to employer-initiated custom retirement instruments where contributions are made periodically.
To reap the maximum retiral benefits you can shift the corpus from superannuation to NPS. The primary reason is that tax deduction benefits are extended in NPS even if you invest 10% of your salary each month. Contrarily for superannuation funds, you must invest 15% of the salary for tax rebates.
Next, the average return on investment from superannuation programs ranges close to 8%. On the other hand, NPS returns are expected to persist between 11-12% according to past records.
Finally, on reaching the retirement age you can withdraw 60% of the corpus totally tax-free from your NPS account. Alternatively, a superannuation plan enables the employee to withdraw only 1/3rd of the accumulated money as a lump sum.
Additionally, other features of the NPS pension system allow subscribers to continue staying invested until they are 70 years old. It is not possible for superannuation schemes if the employer disagrees to provide the facility.
If you want to know more about this topic consider listening to this podcast on Soundcloud: https://soundcloud.com/nps-ki-pathshala-podcast/s712-superannuation-fund-vs-nps
- Story by Kakoli
