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NPS- Swavalamban Pension Yojana

The unorganised sector in India, comprising a substantial portion of the workforce, often lacks adequate social security nets, particularly for retirement. The Swavalamban scheme, also known as the National Pension System (NPS) Swavalamban, is a pension scheme launched by the Government of India in 2010. ...Read More

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NPS- Swavalamban Pension Yojana

What is Swavalamban Pension Yojana?

What is Swavalamban Pension Yojana
August 22, 2024

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In India, the Government has established various pension schemes to support the financial security and independence of senior citizens working in the unorganised sector. One of these initiatives was the Swavalamban Pension Yojana, also known as NPS Swavalamban, which aimed to help this demographic effectively manage their finances. 

Administered by the Pension Fund Regulatory and Development Authority (PFRDA), this micro-pension plan, launched in 2010, encouraged individuals to save for their retirement years. The structure of the scheme allowed for the accumulation of a substantial retirement fund, promoting financial stability and self-sufficiency in post-retirement life.

Participants were required to invest a specific amount annually, ranging from Rs. 1000 to Rs. 12,000, and the government made a contribution of Rs. 1000 per annum for five years. The scheme gained significant popularity, attracting over 35 lakh subscribers by 2014. However, in 2016, the Swavalamban Pension Yojana was discontinued and replaced by the more comprehensive Atal Pension Yojana.

Features of Swavalamban Yojana Scheme

The Swavalamban scheme offers several features, including:

  • Amount of investment: Eligible individuals could start a Swavalamban Pension Scheme account starting from a minimum of Rs. 100. They were not required to make annual contributions, but a minimum yearly deposit of Rs. 1000 and a maximum of Rs. 12000 would attract Rs. 1000 annual contribution from the government.

  • Bank dependence: While the Swavalamban Pension Yojana did not rely solely on a bank account, having one provided advantages as investments were channelled through bank accounts.

  • Returns: Unlike fixed-return options like FD and PPF, the Swavalamban Pension Yojana's returns were not fixed due to being a market-linked scheme, and were influenced by market forces.

  • Intended beneficiaries: This pension plan primarily aimed to benefit economically vulnerable groups in India, such as farmers, self-employed individuals, and labourers.

  • Funding and tax benefits: Government grants funded the pension scheme, and investors could benefit from tax exemptions on the withdrawal amount.

  • Investment pattern: There were no specific limits on the amount investors could contribute to the Swavalamban Pension Yojana. They could deposit as little as Rs. 100 per month and contribute multiple times throughout the year.

  • Investment diversification: Up to 15% of the total funds were invested in the equity market, 55% in government securities, and the remaining 40% in corporate bonds, effectively spreading the risk for account holders.

  • Transaction statements: Account holders received an annual hard copy of their transaction statements, providing details of each contribution and the accumulated corpus.

  • Nominee facility: Account holders could designate a nominee, who could choose to receive the accumulated funds as a lump sum or continue according to the scheme's norms.

Swavalamban Pension Scheme Benefits

The Swavalamban scheme offers several benefits to its subscribers:

  • Minimal Investment Amount:

The Swavalamban Pension Yojana offered a low entry point, making it accessible to a wider range of individuals. With a minimum annual investment of just Rs. 1,000, it enabled even those with modest incomes to begin saving for their retirement. This feature was particularly beneficial for those employed in the unorganised sector, where wages can be unpredictable.

  • Diversified Risk Factor:

The Swavalamban Pension Yojana was overseen by the Pension Fund Regulatory and Development Authority (PFRDA). This governing body is responsible for monitoring the scheme, maintaining transparent investment norms, and reviewing the performance of fund managers. This resulted in predictable returns and offered a secure avenue for generating retirement income. This aspect was considered a major advantage, making Swavalamban Yojana a safe and reliable investment plan for retirement.

  • Can be set up with a Bank account:

While it is not mandatory for Swavalamban Scheme subscribers to have a bank account with the scheme, it is an optional feature that can be beneficial for quick and hassle-free withdrawals.

  • Market-linked Returns:

The Swavalamban Pension Yojana invests in market-linked instruments, meaning that the returns are dependent on the amounts contributed and the performance of the assets. These assets include equity, which can potentially provide high long-term returns.

  • Investment Diversification:

The NPS Swavalamban Scheme diversifies its investments into market-linked instruments such as equity, government securities, and corporate bonds in India. The scheme allocates 15% to equity, 55% to government securities, and 40% to corporate bonds, allowing investors to diversify their investments for potentially high returns and minimise risk.

  • Tax Benefits:

Investors in the Swavalamban Scheme can benefit from tax advantages as per Section 80CCD of the Income Tax Act of 1961. In accordance with the Swavalamban Pension Scheme, the entire amount received upon maturity was exempt from taxation. This advantageous tax treatment shielded individuals' savings from erosion and maximise their overall returns.

How to Apply for NPS Swavalamban?

To apply for the NPS Swavalamban scheme, individuals can follow these general steps:

Step 1: Prospective applicants had to obtain the application form through online or offline channels.

Step 2: After duly filling up the form, it was to be submitted along with KYC documents and an initial deposit of at least Rs.100.

Step 3: Subsequently, the application was to be presented to the nearest designated aggregator, accompanied by the minimum contribution amount to finalise the registration.

Eligibility Criteria for the NPS Swavalamban Scheme

To be eligible for participation in the NPS Swavalamban scheme, an individual must fulfil the following criteria:

  • People aged between 18 and 60 are qualified to join the retirement plan.

  • They must comply with Know Your Customer (KYC) requirements before starting to invest in the program.

  • They must be Indian citizens since Non-Resident Indians are not entitled to participate in the program.

  • The individual should not be enrolled in any other social security program such as the Employees’ Provident Fund, the Coal Mines Provident Fund, the Miscellaneous Provision Act, etc.

Exit/Withdraw Rules

Under the Swavalamban Scheme, individuals generally have the option to leave or terminate the scheme when they turn 60. However, premature exits are also allowed under specific conditions. The rules for withdrawals and exits under the Swavalamban Scheme pertaining to on-time withdrawals, premature exits, and death benefits are:

  • On-time Withdrawals: Subscribers who opt to exit the scheme at the age of 60 are required to invest 40% of their accumulated savings (pension wealth) in an annuity. This annuity will provide a monthly pension of Rs.1000 to the subscriber. If 40% of the savings are insufficient to provide this pension amount, a higher percentage of the entire corpus will be used to purchase an annuity plan.

  • Exit Before 60: Should a subscriber wish to exit prematurely, they must invest a minimum of 80% of their accumulated savings (pension wealth) to purchase an annuity, with the option to withdraw the remaining percentage.

  • Withdrawal on Death: The scheme includes a death benefit, meaning that in the event of the subscriber's untimely demise, the nominee will receive the corpus value. In this scenario, the nominee can withdraw the full corpus by contacting the aggregator.

Conclusion  

The Swavalamban scheme is a commendable initiative by the Government of India to address the retirement security needs of the unorganised sector. By encouraging voluntary savings and providing government co-contribution, the scheme empowers individuals to build a sustainable retirement corpus. While the scheme has its merits, it is essential for potential subscribers to carefully evaluate their financial goals and risk appetite before making a decision. 

Although retirement security is the main goal of pension plans like the Swavalamban Pension Yojana, life insurance should also be taken into account as part of an all-inclusive financial strategy. In the unfortunate event that you pass away too soon, life insurance gives your loved ones a vital safety net by guaranteeing their financial security.

Among the many advantages of life insurance is the lump-sum payment to beneficiaries, which can be used to pay for debt repayment, funeral expenses, and continuous living expenditures. Furthermore, some life insurance policies come with investing options that let policyholders benefit from life insurance coverage while gradually building wealth. Particularly useful for those working in the unorganised economy can be life insurance. Since many people might not have access to employer-sponsored life insurance, looking for individual plans is crucial. You may be sure that your retirement and the future of your family are protected by combining life insurance with a pension plan like Swavalamban.

Ultimately, life insurance complements pension schemes by providing comprehensive coverage that addresses both life and post-retirement needs. It’s a critical step in safeguarding the financial well-being of your family.

FAQs on Swavalamban Scheme

1. Which is better, NPS CRA or NPS Swavalamban?

Both NPS CRA and NPS Swavalamban serve different purposes. NPS CRA, or NPS Central Recordkeeping Agency, is responsible for recordkeeping, administration, and customer service related to the National Pension System. On the other hand, NPS Swavalamban is a specific scheme targeted towards individuals in the unorganised sector. The choice between the two depends on your specific circumstances and requirements.

2. What are the benefits of Swavalamban Yojana?

Swavalamban Yojana offers several benefits, including a regular pension after retirement, partial withdrawals, and tax benefits. The scheme ensures financial security for unorganised sector workers who often lack a formal pension structure.

3. What is the premature withdrawal of NPS Swavalamban?

Premature withdrawal from the NPS Swavalamban is generally not allowed. However, there are exceptions under specific circumstances such as permanent disability or death of the subscriber.

4. What are the Tax benefits on NPS Swavalamban?

Contributions made towards NPS Swavalamban are eligible for tax benefits under Section 80CCD(1B) of the Income Tax Act, 1961. Investors can claim deductions of up to Rs. 50,000 in addition to the existing limit of Rs. 1.5 lakh under Section 80C.

5. What is the purpose of the Swavalamban scheme?

The Swavalamban scheme aims to encourage individuals in the unorganised sector to save for their retirement. It provides a pension to subscribers, ensuring financial stability and independence during their golden years. The scheme plays a vital role in extending social security benefits to workers who lack a formal pension structure.

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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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