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National pension system, the best pension scheme

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October 30, 2018
The core strength of your finances comes from the frequency of a regular income. However, once you retire, this financial strength faces a test. It is very important to have a pension system in place, which allows you to take care of the needs of your dependent ones and yourself, after retirement. Pension schemes  provide financial security and stability during old age when people don't have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. These plans inculcate the habit of saving for the grey years ahead and serve as instruments of investment for this purpose.

National Pension Scheme (NPS) is one such scheme that was launched by the government of India in 2004, for allowing pension cover for the government officials. Later on, it was extended for people employed in all the sectors and included unorganized sector as well. It is one of the prime beneficial pension schemes meant for the citizens of the country and has numerous benefits that outweigh similar schemes in the market. The pension market in India is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and within the architecture of NPS, the NPS - POPs (Points of Presence) serve as the first points of interaction for the NPS subscribers. The joining eligibility for NPS is quite flexible and extends to both the resident as well as non resident Indians. Any individual between the age group 18-60 years can become an NPS subscriber, subject to the KYC (Know Your Customer) clearance after applying for the same at the nearest point of presence.

Unlike EPF, NPS offers three plans - corporate debt, government bond and equity and in case of equity, the fund allocation can go up to 50%. The minimum contribution required for NPS is Rs.6000 and has to be contributed annually. There is no upper capping on the contribution. NPS is also extensively beneficial for tax savings and the subscriber can claim a deduction of up to Rs 1.5 lakh under Section 80C. Apart from this, an additional deduction of Rs 50,000 is allowed under Section 80CCD (1B). This is over and above what you can claim under Section 80C. An employee is also allowed to claim deduction against the contribution made by the employer of up to 10 per cent of the salary (basic salary plus dearness allowance) in the NPS under Section 80CCD(2). There is no limit on this deduction. However, the returns earned on NPS are not taxed but there is tax on 40 per cent of the withdrawal amount.

As it is primarily meant for providing a pension cover, 40% of the accumulation fund is mandatorily directed towards annuity plans. Alongside promotion of healthy and regular investment, this means a secured and guaranteed cover after retirement. Under NPS, there are two types of accounts: Tier I and Tier II. Tier I is the primary account which has restrictions on the utilization of the accumulation fund and this is the slab to which the tax benefits are applicable. PFRDA allows a tier II account, where subscribers having a teir I account can deposit and withdraw funds as and when they want. Tier II account is similar to a mutual fund and allows added flexibility.

In order to provide assured returns, HDFC Life offers various saving and investment plans that keep your funds secure and allow you to grow your financial strength. For details, click on the mentioned link: https://www.hdfclife.com/savings-plans

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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