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What is the NPS Scheme: How does It Work?

The Indian Government’s pension scheme called the National Pension System which is regulated by the Pension Dun Regulatory and Development Authority (PFRDA) is inviting citizens under this social security scheme. Here is an in-depth take on how and who can avail this scheme.

In the light of better hygiene and increasing health awareness, people are becoming more conscious over their mental and physical wellbeing. The fact directly relates to the average life expectancy of a human. Speaking of which, the collective efforts of medical institutions, government, and the people have increased the average life expectancy as per the United Nations Population Division. They claim the world’s average life expectancy to stretch another 10 years from 65 years to 75 years by the end of 2050. The collective efforts of each nation have to lead to this major achievement. However, the fact has also increased the number of retirement years.

Government is pledged to take care of the old after they have completed their service to the nation. From the government’s point of view, its 10 more years of providing aid to one person. Now forecasting the same for millions of other people will cost a dime to the government. With that said pension schemes and retirement plans are more important than ever, so the Indian government started the National Pension System which is under the supervision of the Pension Fund and Regulatory Development Authority (PFRDA). The authority is entitled to take people under the affordable social security scheme. It is a decent program where employees and employers both contribute to pool in the funds to avail this economical, tax efficient, and flexible scheme.

Now there is no one scheme fit all, different people have different needs and plans for their retirement. Fortunately, the government understands those intentions and have three different accounts-

Tier 1- This is a non-withdraw-able account where the money could only be withdrawn after competing the conditions prescribed by the NPS. A person under this scheme has to pay an annual amount of Rs 6000 from keeping the account from being frozen.

Tier 2- This type of account is not a sole entity but an extension to the Tier 1 account. This means to open a Tier 2 account one needs to have a Tier 1 account. The benefit of this one is that you can withdraw money any time you want. One needs to contribute the minimum amount of Rs 2000 annually for this account.

Swavalamban Account

In this account, the Indian Government contributes a total of Rs 1000 every year for the next 4 years after the initiation of the account.

After opening the account one needs to appoint a nominee for the money. For Tier 1 and Tier 2 account, one can appoint up to three nominees for one account. The account holder cannot change the nominees until you have achieved the Permanent Retirement Account Number (PRAN) which is a unique 12 digit number.

Who can Join

Any Indian citizen or non-resident too can apply to join the NPS Scheme. The age of the applicant should be between 18 to 60 years. One can join as an individual applicant or as an employee-employer group. For the people who are not Indian residents can also apply, their funds are regularized by RBI and FEMA.

How to Open an NPS Account

One can open an NPS account only through the authorized Point of Presence (POP). These POPs are your Banks and almost all the financial institutions by the government. One can take the form from these POPs and fill up the details and the required documents. Multiple accounts are not allowed for one individual. To locate these POPs one can visit the official PFRDA website.

Their documents need to open an NPS accounts are listed below-

  • Identity Proof
  • Address Proof
  • Proof for Date of Birth
  • Subscriber Registration form

You would be happy to know the NPS scheme is synonymous all over the country. All the way from government servants to the Private sector employees. Also, if a person leaves their job to pursue self-employment then the account remains intact.

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Written by Alankit

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