The New Pension Scheme, also known as the National Pension System (NPS), was introduced by the Government of India in 2004. The scheme aims to provide retirement benefits to all citizens of India, whether they are salaried employees or self-employed professionals. Here are some frequently asked questions about the New Pension Scheme:
Who can join the New Pension Scheme?
Any Indian citizen between the ages of 18 and 65 can join the New Pension Scheme. The scheme is also open to Non-Resident Indians (NRIs).
How does the New Pension Scheme work?
Under the New Pension Scheme, individuals contribute a portion of their salary or income into a pension account. This amount is then invested in a mix of equity, corporate bonds, and government securities, based on the individual’s risk profile. The scheme aims to provide market-linked returns on investment, which will accumulate over time to provide a pension at the time of retirement.
What are the tax benefits of the New Pension Scheme?
Contributions made to the New Pension Scheme are eligible for a tax deduction of up to 10% of the individual’s gross income, subject to a maximum limit of Rs. 1.5 lakh per annum. Additionally, the returns earned on the investment are also tax-free.
How is the pension amount calculated under the New Pension Scheme?
The pension amount under the New Pension Scheme is calculated based on the individual’s contribution, the number of years of contribution, and the returns earned on the investment. At the time of retirement, the individual can choose to withdraw a portion of the accumulated corpus as a lump sum, and the remaining amount is used to purchase an annuity, which provides a regular pension for the individual’s lifetime.
Can an individual switch between different pension fund managers under the New Pension Scheme?
Yes, individuals can switch between different pension fund managers under the New Pension Scheme, subject to certain restrictions. The switch can be made once a year, and the individual must provide a notice of 15 days to the existing fund manager before switching.
What happens to the pension amount in case of the individual’s death?
In case of the individual’s death, the accumulated corpus in the pension account is paid out to the nominee or legal heir of the individual.
Is it mandatory to purchase an annuity under the New Pension Scheme?
Yes, it is mandatory to purchase an annuity under the New Pension Scheme, with at least 40% of the accumulated corpus. This is to ensure that the individual receives a regular pension for the rest of their life.
The New Pension Scheme is a reliable investment option for individuals looking to secure their retirement. It offers tax benefits, market-linked returns, and flexibility to switch between different pension fund managers. By understanding the basics of the scheme and planning accordingly, individuals can ensure a comfortable retirement.
