Until recently, most people were unaware about the government-approved National Pension System (NPS). This pension plan was made compulsory for state and central government employees in 2008, while it was optional for private-sector employees.

Banks did little to push their customers to invest in the scheme because their fees were very low, irrespective of the amount invested. The Pension Fund Regulatory and Development Authority (PFRDA) was also unable to increase the reach of the new scheme to voluntary investors because of limited interest shown by the intermediaries.

Features of the National Pension System (NPS)

• Available for individuals aged between 18 and 60 years
• Tier I and Tier II accounts; NPS Tier I account is the primary pension account where holders cannot make a withdrawal before they are 60 years, while Tier II account is the optional account where holders enjoy some flexibility on withdrawals, under certain terms and conditions
• Minimum annual contribution of INR 6,000 in Tier I NPS account
• Contribution invested in 3 asset classes; equity, government securities, and corporate bonds
• Maturity when account holder reaches 60 years
• In Tier I, 60% of accumulated corpus can be withdrawn as a lump sum &
• 40% of accumulated corpus converted to annuity; investors can check the annuity amount using a pension plan calculator for India

Fund managers

Subscribers to the National Pension System can choose to actively participate in the investment of their contributions. Alternatively, they can opt for automatic investment made by PFRDA-approved fund managers:

• LIC Pension Plan
• SBI Pension Funds
• Kotak Mahindra Pension
• ICICI Prudential Pension
• UTI Retirement Solutions
• Reliance Capital Pension
• HDFC Pension Fund

Performance and Cost

Before you decide to open an NPS account, you should consider the performance of NPS tier I and tier II accounts. This scheme has offered past returns between 5 – 12% per annum, primarily because of market volatility. Fortunately, fund managers are experienced professionals with excellent track records and investors can hope to earn higher returns on their contributions towards NPS.

Compared to all other investment avenues, the cost of the new pension plan is lowest. Fund management cost is restricted to 0.01% and the points of presence charge a nominal amount when you open an NPS account. The account opening fees for the central record keeping agency (CRA) and an annual fee is payable by the subscribers.

How to open NPS Account

As a banking customer, you can simply ask your bank to open the account and you can start subscribing immediately. When you open this account, you are eligible to receive tax benefits under section 80 C of the Income Tax Act.

The procedure to open an NPS account is simple and hassle-free. If you are confused you can simply refer to an online guide on ‘ to open NPS