Investment Planning on Post Retirement Financial Support – NPS

After 60 years normally the retired life requires more support for Physical, moral and financial needs. Some needs more physical support, some moral but everyone needs financial support. In this context, those who looks for financial support or income after retirement needs to have certain plan in early stages of life, which aims to support future financial requirements. Now, there is a scheme NPS which give Tax benefits as well and stays a head among the other pension schemes.

 NPS or National Pension Scheme, for whom it is meant for:

It’s a long term voluntary investment scheme introduced by Central Government aim to serve the retired from Job. This scheme has been maintained by PFRDA (Pension Fund Regulatory and Development Authority). This scheme is useful to build a bigger fund, on regular small investments made for a long time till the retirement age. People from Public Sector, Private Sector and un-organised sector are eligible to join this scheme. However, who were employed under armed military forces has the similar sort of scheme direct from the Government, hence, they are not eligible to join this scheme.  Age criteria starts from 18 years upto 60 years. Each person is eligible to open one account only. Mentally not healthy are not eligible to open the account. This scheme aims to invest money during the employment and to have pension after retirement. An Individual can withdraw some amount from accumulated investments from this scheme after resigning from services. Monthly Pension will be arranged from the remaining accumulated investments. You can continue under this scheme if you change your job or company or place of work and your account remains same. Every individual who opts this scheme can claim to avail Tax benefits under Section 80C, Section 80CCD.

How and Where to Open Account:

Lot of options were available to open an account. Any individual can also find the right information on PFRDA website – Else you can contact at your nearest POP-PS branch, and complete your KYC (Know Your Customer) formalities to open account. After completion of account opening procedure you get PRAN (Permanent Retirement Account Number).
NPS have two types of accounts a) Tier – I account: It is Non-withdrawable PRAN account, here the accumulations are deposited and invested as per the subscribers option. You have the option of claiming Tax benefits under Section 80CCD under this account.
b) Tier – II account : It is a voluntary withdrawable PRAN account, which is allowed only if you have opened Tier-I account on subscribers name and withdrawals are permitted as and when the subscriber needs to claim. There are no Tax benefits on this account.
If you want to open a Tier-II account then you should get PRAN and submit specific documents. You have to invest some amount to open a NPS account, suppose if it is Tier-I the minimum amount is Rs.500/- and for Tier-II it will be Rs.1000/-. However, there is no upper limit to invest in both the accounts.
You can also open NPS account online. The investment money can be deposited online as well. Lot of brokerage companies and Banks have the facility to open the NPS account.

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What about Tax benefits of NPS:

The NPS account attracts good Tax benefits under couple of sections. Section 80C & Section 80CCD.
If your Employer has considered NPS instead of EPF (Employee Provident Fund), the accumulations each from your salary and Employer contribution both can be considered under Section 80C. As per the rules of this section the Tax exemptions allowed upto Rs.1,50,000/- only. If your investments are above Rs.1.5 lakhs, under Section 80CCD you can get a maximum exemption of Rs.50,000/- as an addendum to Section 80C.
For Example: Srinivas has availed an exemption of Rs.1,50,000/- under Section 80C of Income Tax Act from EPF/NPS, Insurance Premium, Children School Fee, ELSS schemes.  Still, He can invest Rs.50,000/- more into NPS and avail Tax exemption under Section 80CCD. Srinivas can avail a maximum tax exemption upto Rs.2,00,000/-.

Post Retirement Taxes:

As per the new Tax Regulations, an Individual can withdraw upto 60% of the total accumulations without paying any Tax. From remaining 40% of your accumulations, you need to buy PFRDA permitted Annuity schemes. Pension from these annuity schemes should be declared together with your present income as per prevailing Income Tax Rules.

Investment Plans:

Three types of Funds available in the market under NPS.
Equity Based Income Funds:  These funds were termed as Asset -E Class. If you choose these funds for your investment, funds are diverted to equities. Equity market is aggressive and is more tend to volatility and have chances of high returns at the same time. If you choose this plan, 50% of your investments were kept equity market. This rule is bit inconvenience, however, there is a great chance of loss but on a longer time these are lucrative.
Regular Income Funds: Investment goes to regular funds other than the Government Securities. These funds are classified as Asset Class – C. These funds have low risk of loss and the income or the returns are also low.
Low Risk Funds: If you want to invest in Government Bonds & Securities only, you can choose Asset Class – G. Here, you get less returns and less risk.
Active choice: While you invest in mutual funds you have the option to choose how much investment should be kept under which type of fund, so that you can track your fund performance and this is termed as Active Choice.
Age decides investments: PFRDA decides the plan of investment as per the age of NPS account subscriber and maintains accordingly. Account subscriber has an option of changing the plan of investment once in a year.

Who Maintains NPS:

PFRDA empaneled 7 fund managers to maintain the National Pension System in India.
* HDFC Pension Management Company
* LIC Pension Fund
* ICICI Prudential Pension Fund
* Kotak Mahindra Pension Fund
* Reliance Pension Fund
* SBI Pension Fund
* UTI Retirement Solutions
Under NPS you can choose the fund manager to maintain your investments. You can also switch from one fund manager to other fund manager but you have this option once in a year.

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Insurance Companies for Pension Management:

NPS Subscribers after attaining 60 years of age Pensioners should buy Annuity Schemes from Insurance Companies to get pension. Find below some of the permitted insurance companies.
* Life Insurance Corporation of India (LIC)
* SBI Life Insurance
* ICICI Prudential Life Insurance
* Bajaj Allianz Life Insurance
* Star-Daichi Life Insurance
* Reliance Life Insurance
* HDFC Standard Life Insurance

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