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Benefits of National Pension System Research Team | Posted On Friday, April 12,2019, 05:11 PM

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Benefits of National Pension System



Retirement planning is important for a stress free retirement. Retirement means the end of service tenure. After retirement, senior citizens need a regular source of income like a monthly pension. A pension plan is a good investment to ensure regular income post retirement.

Currently there are two types of pension plans available in the market. One works like a fixed deposit where the depositor invests a lump sum amount at once and the second one is a type of investment where the depositor invests smaller amounts regularly. A well chosen retirement plan can help you earn inflation beating returns, with the power of compounding.

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Benefits of National Pension System

National Pension System:

The National Pension System (NPS) was launched on 1st January, 2004, with the objective of providing retirement income to all citizens of India. NPS aims to inculcate the habit of saving for retirement. Initially, NPS was introduced for new government recruits who were deemed to be eligible for this scheme.

The system was later open for all citizens of India which also included workers of the unorganized sector. NPS is a transparent and cost effective system, wherein the contributions are invested in a mix of equity, corporate bonds and government bonds. You get to know the value of the investment on a day to day basis.

Benefits of NPS Tier 1 Account:

The main function of the Tier-1 NPS account is to enable the beneficiary create a retirement corpus, through regular deposits. The beneficiary can hold the NPS account up to the age of 60 and so continuous funds are received by this account until maturity.

The beneficiary can withdraw only 20% of the accumulated corpus and the remaining 80% must be compulsorily locked in an annuity scheme on withdrawals before maturity.

SEE ALSO: How To Open NPS Account?

Benefits of NPS Tier 2 Accounts:

The Tier-2 account is also a savings account. However, the main benefit of this account is that the beneficiary can withdraw accumulated funds at any point in time without any restrictions.

This account does not offer any tax benefits and is mainly used for the purpose of saving and parking funds that can be used for an emergency or to meet financial goals. The contribution made by the beneficiary to the NPS Tier 2 accounts can be done, only if the beneficiary is a member/ subscriber to the NPS. This is also called a voluntary savings account.

If you have not invested in any pension scheme, opt for NPS. The money grows and you will have a huge retirement corpus at maturity. With responsible and balanced savings, the beneficiary is able to accumulate a huge sum at retirement. By enrolling in this scheme, beneficiaries earn attractive returns and fulfill long term financial goals.

Using NPS Calculator:

Many online websites and aggregators provide the facility of NPS calculator. NPS calculator is a tool that helps subscribers calculate the total amount that can be generated by depositing a specific amount each month till retirement.

The NPS calculator is simple and easy to use as the user only inputs certain information in the mandatory fields and clicks on the calculate button. The output is displayed automatically.

The users can make informed decisions on the deposits in the NPS account, each month. The user gets an idea on the deposits throughout the period to meet investment goals. Good retirement planning gives inflation beating returns for a huge retirement corpus.

Depending on the monthly income, NPS subscribers can determine the size of NPS contributions. Using the calculator they can check and see how much wealth will be accumulated till the age of 60. The NPS calculator is a comprehensive tool to understand the benefits of this scheme. The user does not need to go through a complex calculation process. Simply visit online and check how much investment must be made in the NPS scheme.

Maximum age on NPS Account:

The main aim of the NPS account is to motivate people save money for retirement and build a corpus over a long period. This helps citizens get monthly pension which can be used for lifestyle expenses and covering health care costs in retirement. The maximum age up to which you can hold an NPS account is 60 years.

The NPS account matures as soon as the account holder reaches the age of 60. You can invest in NPS from the age of 18 years. The money invested in the NPS account grows with the power of compounding. So, a small investment is worthwhile and grows into a considerable amount at maturity.

SEE ALSO: Best Pension Plans In India

Withdrawal Prospects of NPS:

The primary objective of the NPS is to ensure that each citizen is actively saving money for retirement. To make this a reality, the NPS account has strict rules and guidelines that each account holder must follow.

The strict regulations make sure the account holder does not withdraw from the scheme till maturity. Out of the available options, the Tier-2 type of the NPS account has no specifications on withdrawal limits. So, the beneficiary can withdraw funds as per his needs at any time.

The NPS Tier 1 is designed specifically to help the beneficiary accumulate funds for retirement, and so has some rules on withdrawals.

At the age of 60, only 60% of the totals funds can be withdrawn from NPS. The remaining 40% must be compulsorily invested in an annuity plan, which would provide the beneficiary with a monthly pension in retirement. The 60% corpus withdrawn at retirement is tax free.

Income Tax Benefits on NPS Accounts:

NPS enjoys Section 80C tax benefits up to Rs 1.5 Lakhs a year. You get an additional deduction up to Rs 50,000 a year under NPS (Tier 1 accounts), under Section 80 CCD(1B). This is over and above the Section 80C deduction. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

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