Pension schemes are initiated for people who do not have a regular source of income after their retirement. It can either be offered by the employer, like in government jobs or by any third party.
In the public sector jobs, the financial security after your service period is guaranteed. Government employees are given benefits like provident funds, pension services etc. Nowadays most of the private sector employers are introducing pension schemes to attract and retain human resource. New Pension Scheme was initiated by the Government of India mainly for the benefit of employees who constitute the unorganized sector and gave an opportunity to senior citizens seeking pension services after 60 years of age. It came into force in May, 2009. It is regulated and monitored by the Pension Fund Regulatory and Development Authority – PFRDA. Due to low commission and incentives of the intermediaries and middlemen, this pension scheme did not receive a lot of promotion. Overview The following is a brief glance over the basic features of this pension scheme. Minimum Age- 18 years Maximum Age- 60 years Minimum Amount of Premium- INR 6000 yearly and INR 500 monthly Maximum Amount of Premium- INR 12000 Why to buy the pension scheme under NPS This pension scheme is the cheapest retirement plan in the market compared to its peers like the EPF, PPF and mutual funds. The contributions are voluntary and it has to be made once in a year. Owing to its cost, this pension scheme has the highest number of sales recorded. The amount is invested as per the buyer’s preference. A couple of investment options are offered to the buyer to select from and they are driven by the individual’s preference of asset allocation and withdrawal. Features & Benefits 1. The New Pension Scheme entails three accounts namely- Tier 1, Tier 2 and Swavalamban Account. Tier 1 Account – o This account does not permit any withdrawal till the age of 60. Government employees compulsively have to invest 10% of their salary and dearness allowance to this account. The employer needs to contribute the same amount. o Investment is generally made in government bonds. In non-government funds the contribution amount is INR 6000 yearly on in installments of INR 500. The investment in case of non-government funds is made in liquid funds, fixed deposits, corporate bonds etc. Tier 2 Account – o This account gives the liberty of withdrawal and investment. However this account will be granted only if you own a tier 1 account. o The investment options are varied such as equity, government funds, liquid funds etc. o The minimum amount of contribution here is INR 250 monthly and INR 1000 while subscribing to this account. At the end of the financial year it is essential to maintain a minimum balance of INR 2000. Swavalamban Account – o This account in this pension scheme mainly focuses in uplifting the financially and economically backward sector. The employee must hail from the unorganized employment background. o The government contributes INR 1000 for the initial 4 years in this account. 2. Benefits in taxes – There are not any direct exemptions or deductions on premium however while withdrawing the amount is completely exempt under the Income Tax Act, 1961. 3. Less risk – Since the initiative is government induced, the investments bear lesser risk. 4. Low cost – The cost of investment charged to the buyer is 0.0001%. Thus, it becomes inexpensive to avail this pension scheme. Managers selected by the authority for fund management and investments PFRDA has appointed seven fund managers. The government employee accounts are looked after by UTI Retirement Solutions, SBI Pension Plan and LIC Pension Plan while the investments are managed one of the following six fund managers - LIC Pension Plan, UTI Retirement Solutions, ICICI Prudential Pension, Kotak Mahindra Pension, Reliance Capital Pension and SBI Pension Funds. Eligibility The plan has very basic eligibility criteria. · The applicant or the plan buyer must be a citizen of India. · He or she must be from the age group of 18-60. · The contribution or the premium must be remitted during his or her active years of working. Claim Process On opening the Tier 1 account, the subscriber is given a Permanent Account Retirement Number. The transactions can be carried out in cash or via cheque. During every transaction the PRAN must be provided.
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Archana SinghFinance and Investment Blogger Archives
March 2017
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