A simple but effective way to plan your retirement


NPS Lite offers Indian citizens a low-cost option for planning their retirement

Earlier to provide old age income, PFRDA (Pension Fund Regulatory and Development Authority) had introduced National Pension System (NPS). An online facility, NPS provides a subscriber access to two personal accounts: Tier-I pension account & Tier-II savings account.

In Tier-I pension account, you will contribute your savings for retirement into this non-withdrawal account. Tier-II savings account is simply a voluntary savings facility. You will be free to withdraw your savings from this account whenever you wish.  

On the other hand, NPS Lite is launched for people belonging to low income group so that they can plan for their retirement even with small investment amount of Rs. 100 per month. An offline service, NPS Lite is designed to ensure very low administrative and transactional costs for investors. Both NPS & NPS Lite provide Swavalamban (self reliance) benefits.

 

As said earlier, NPS Lite offers Indian citizens a low-cost option for planning their retirement. The Scheme generally offers 8.5%-9% returns per annum, depending on the fund performance. At the end of the tenure (retirement), 60% of the corpus can be withdrawn from NPS Lite and the remaining 40% will be invested in an annuity provided by insurance companies. A subscriber cannot withdraw the entire corpus at the end of the tenure. He has to buy an annuity which will be at least 40% of the total corpus. Pension will be given to the subscriber on a monthly basis based on annuity scheme chosen at the time of retirement. Withdrawal amount will be sent directly to the subscriber’s bank account. However, NPS Lite account does not provide liquidity.

Benefits of ‘NPS Lite’

  • NPS Lite is portable. You can operate your account from anywhere in the country, even if you change your city, job or your aggregator.
  • NPS Lite is safe. It is regulated by PFRDA, with transparent investment norms and regular performance review of fund managers by NPS Trust.
  • Tax benefit up to Rs. 1 lakh is available under section 80 CCD.

NPS Trust

PFRDA has established the NPS Trust under Indian Trust Act, 1862 and appointed NPS Board of Trustees in whom the administration of the National Pension System vests under Indian Law. The Trust is responsible for taking care of the funds under the NPS. The Trust holds an account with the Bank of India and this bank is designated as the NPS Trustee Bank.

How can I open an NPS Lite account?

Opening an NPS Lite account is very simple. You need to fill the NPS Lite form and provide the required documentation along with a minimum investment amount of Rs. 100 to the authorised aggregator approved by PFRDA. You can also download the application form from the PFRDA website or Payment can be made in cheque or cash. The account has to be opened in the name of an individual. It cannot be opened in joined names. Subscriber can nominate a maximum of three nominees.

Pankaaj Maalde, head-financial planning, ApnaPaisa.com, said, “Any individual between 18 years to 60 years who is citizen of India can enroll in NPS. Even an NRI can enroll for NPS. However, Hindu Undivided Family is not allowed to invest in NPS.” 

Documents to be submitted include two photo copies of identity proof and address proof and a recent passport size photo. Identity proof documents would include your PAN (permanent account number) card, ration card, voter’s ID card, etc. Address proof documents consists of driving license, passport, electricity bill, telephone bill, bank account statement, rent receipt and credit card statement among others. These copies should be self attested. The forms are to be mandatorily filled in black pen.

What is PRAN?

The PRAN (Permanent Retirement Account Number) card will be issued to each subscriber on the registration of his NPS Lite account.

The PRAN card is a document with PRAN No, subscriber’s name, father’s name, photograph and signature/thumb impression. The Card is issued by Central Recordkeeping Agency i.e. NSDL (National Securities Depository Ltd). A subscriber can hold only one PRAN card. The PRAN card will be unique, permanent and portable. The subscriber will get the PRAN card within 20-30 days after the submission of documents. A subscriber cannot open two different accounts in similar name. In case of rejection of application, the amount is refundable.

What is the role of an aggregator?

Entities approved by PFRDA would be acting as aggregator in NPS Lite for their subscribers. Aggregator performs functions relating to registration of subscribers, undertaking KYC (know your customer) verification, receiving contributions and instructions from subscribers and transmission of the same to designated NPS Lite intermediaries.

Opening an NPS account is very simple. All you have to do is open an account through your Aggregator and get a PRAN. List of aggregators appointed website.

Investment amount

There are no lower & upper limits to the number of contribution per year. The subscriber is free to manage the frequency and amounts of contributions. However, more than 12 transactions in a year will cost you Rs. 5 per transaction.

Swavalamban scheme

There is no minimum investment requirement each year, however minimum of Rs. 1,000 contribution per year is recommended. Those desirous of availing Swavalamban scheme of the government must invest at least Rs. 1,000 during the year so that they can get government contribution of Rs. 1,000 in the account each year. This additional benefit is available to NPS Lite subscribers opting for Swavalamban Scheme Benefit. The Scheme is valid till FY 2016-17 and may be extended thereafter.

Pravin Chordia, product manager-financial products division, India Infoline, “Under Swavalamban scheme, the government contributes Rs. 1,000 per annum for next five years. The scheme is applicable only for individuals investing from Rs. 1,000 to Rs. 12,000 per annum. If a subscriber invests Rs. 100 per month, still the government will contribute Rs. 1,000 each year for five years. However, if the subscriber invests above Rs. 1,000 per month, even then the government would pay Rs. 1,000. But, if any investment is above Rs. 12,000 per year then that account will not receive government contribution of Rs. 1,000.”

Charges

The account opening charges are charged only once at the time of the registration and annual maintenance charges are charged every year. .

Pension Fund Managers

The appointed pension fund managers (PFMs) would manage the retirement savings of subscribers under the NPS Lite. The PFMs are required to invest strictly in accordance with guidelines issued by the government/PFRDA. The aggregators may choose one of the PFMs to whom the entire corpus can be entrusted.

Details of pension fund manager

  • ICICI Prudential Pension Funds
  • IDFC Pension Fund
  • Kotak Mahindra Pension Fund
  • Reliance Capital Pension Fund
  • SBI Pension Funds
  • UTI Retirement Solutions

Withdrawal

If you want to withdraw before 60 years of age, you would be required to invest at least 80% of the pension wealth to purchase a life annuity from any IRDA–regulated life insurance company. Rest 20% of the pension wealth may be withdrawn as lump sum.

On attaining the age of 60 years, you would be required to invest minimum 40% of your accumulated savings (pension wealth) to purchase a life annuity from any IRDA-regulated life insurance company. You may choose to purchase an annuity for an amount greater than 40%. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60 or in a phased manner, between age 60 and 70, at the option of the subscriber. In case of death of a subscriber the entire accumulated wealth can be made payable to the nominee. The nominee has to contact the aggregator and submit necessary documents such as death certificate, identity proof, etc.

There are around six types of pension schemes that a subscriber can opt at the time of retirement or at the time buying annuity. No cash transaction is permitted at the time of pension. You have to inform your bank details to the aggregator at the time of buying the annuity. The pension amount will be directly transferred to your account through NEFT. This is in interest of the subscriber.

Annuity service providers

Subscribers to NPS Lite can choose their annuity schemes from six annuity service providers on their exit from NPS on attainment of 60 years of age.

  • Life Insurance Corporation of India
  • SBI Life Insurance
  • ICICI Prudential Life Insurance
  • Bajaj Allianz Life Insurance
  • Star Union Dai-ichi Life Insurance
  • Reliance Life Insurance

Subscribers can choose from any of the six above mentioned annuity service providers and can also make their choice of the annuity scheme from amongst the schemes being offered by these providers.

Annuity service providers would be responsible for delivering a regular monthly pension to the subscribers for the rest of their life.



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