Why national pension system (nps) is a better option for retirment savings

There are a few retirement systems available for retirement savings. They are Employees’ Provident Fund (EPF), Exempted Provident Fund (PF), Public Provident Funds PPF), Pension Plans and National Pension System (NPS). The National Pension System offers better opportunity to save for retirement at the lowest cost with minimum amount of investment. Though the NPS has many benefits, it has six unique advantages over other systems in India. They are as below:

1. Portability

The NPS is based on Personal Retirement Account (PRA) which has the benefit of portability. There will be no change of status of the account when a person changes one job to another. The NPS account would be portable across all regions in India, when the subscriber changes his job from one region to another. Now non -resident Indians are also permitted to contribute to NPS. The benefits of portability of NPS account makes seamless way of contribution, less procedure and continuity of accounts till retirement. The choice of portability is absent across jobs and place under EPF.

1. Higher Tax Savings

Tax benefits are available under all the systems for retirement savings. In case of NPS, the additional tax benefits are available to save more tax and thereby earn higher post-tax returns. The tax benefits available for retirement savings are:

• The contribution to PF/EPF/PPF/NPS qualify for deductions under section 80C and also investments in pension plans under 80 CCC is combined to the maximum of Rs. 150000/-

• Individual can claim additional deduction of Rs. 50000 under 80C for NPS contribution in addition to Rs. 150000 limit.

• Employee covered under NPS can claim additional deduction of 10% of the employer’s contribution to the NPS in additional to the overall deduction of Rs. 150000+50000.

1. Choice of investments

Only NPS offers the choice of investment among the asset classes namely equity (E), Fixed income securities (C) and Government Securities (G). The subscriber to the NPS can choose any combination of asset classes to invest based upon their risk appetite. However, the allocation of equity is restricted up to 50% of the contribution. the contributions are allocated to the asset classes based on life cycle (based on age) If the investment choices are not made by the subscriber. The allocation of equity along with bonds not only earns higher real returns than bonds, but also has lower volatility compared to equity in medium and long-term. The blend portfolio which is made of both bonds and equity becomes consistent performer irrespective of performance of equity markets. The choice of investments by the subscriber is not available under both EPF and PPF.

1. Better Performance

Pension funds managed under NPS performed better than EPF and PPF. The following tables narrates the performance of various pension funds for the past five years ending March 2015. All the funds under NPS performed better than existing pension schemes under all categories of asset allocation. Even minimum returns generated by pension funds are better than EPF and PPF, while real returns of EPF and PPF are close to bank deposits with 0.54%. The real returns of 1.70% generated by NPS Govt. Securities is more than three times compared to real returns of bank deposits. In case of NPS equity and NPS corporate bonds, the best funds earned annualised real returns of 2.84% and 3.10% respectively for the past five years ending March 2015.

1. Choice of Fund Manager

Under NPS, subscriber to the NPS has choice of selecting the fund manager to invest in the funds managed by them. Further they can also change their fund manager to a better managed funds, if the subscriber is not satisfied with performance of the fund. The option of selecting and changing the fund manager is not possible under any other retirement systems.

• The pension funds for the Government sector are LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Ltd.

• The pension funds for the private sector are HDFC Pension Management Co. Ltd., ICICI Prudential Pension Fund Management Co. Ltd., Kotak Mahindra Pension Fund Ltd. LIC Pension Fund Ltd. Reliance Capital Pension Fund Ltd., SBI Pension Funds Pvt. Ltd., UTI Retirement Solutions Ltd and Pension Fund (PF) to be incorporated by Birla Sunlife Insurance Co. Ltd.

1. One system for All

The NPS covers all categories of employees, professionals and individuals both in organised and unorganised sectors.

• Any individual with age of 18-60 years are eligible to join the NPS under all citizen model

• The employees of both central and state government including their autonomous bodies are covered under NPS. All the central government employees joining the services on or after January 1, 2004 are mandatorily covered under NPS

• Under corporate model, all the employees of entities registered under the Companies Act, Co-operatives Acts, Central and state public sector enterprises, registered partnership firm, limited partnership concern, Trust/Society or body incorporated under any Act are covered.

• Under NPS Swavalamban, the scheme will be applicable to all persons in the unorganised sector. The benefit of Central Government contribution under NPS Swavalamban will be available only to those persons whose contribution to NPS is minimum Rs.1000 with maximum Rs. 12,000 per annum.

• Atal Pension Yojana scheme under Pension Security Program covers all bank account holders who neither pay income tax nor being members of any statutory social security scheme. The Central Government would contribute 50% of the contribution or Rs. 1000 whichever is less for the period of five years. The minimum age to contribute is 18 years with maximum age of 40 years under the scheme

How to Invest

The following three steps are to be followed to subscribe to the NPS.

• Those who want to join NPS must have a bank account and fulfils KYC norms

• They can contact any one of the Point of Presence (POP) who will help all the formalities of joining the NPS

• They have to select any one of the fund managers registered with PFRDA.

Clink to the Forms or (copy pest below link) for all the forms of NPS

https://npscra.nsdl.co.in/non-goverment-form.php

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