NPS Savings: The Guide of Contributions and Account Management

The National Pension System (NPS) is India’s premier retirement savings scheme, designed to provide financial security post-retirement through disciplined, long-term investments. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), it combines tax efficiency, market-linked returns, and flexible contributions, making it a preferred choice for salaried professionals, self-employed individuals, and corporate employees.

Understanding NPS Contributions

a) Who Can Contribute?

• Eligibility:
  • Indian citizens aged 18–70 years, including NRIs.
  • Excludes Overseas Citizens of India (OCIs), HUFs, and minors.
  • Corporate employees can enroll via employer-sponsored Corporate NPS.

b) How Much Can You Contribute?

• Tier I: Minimum ₹500 per contribution (₹1,000 annually). No upper limit.
• Tier II: Minimum ₹250 per contribution; no annual requirement.
• Voluntary contributions are allowed, enabling subscribers to increase their corpus flexibly.

c) Tax Benefits on Contributions

• Section 80C: Up to ₹1.5 lakh annually under the old regime.
• Section 80CCD(1B): Exclusive tax benefits upto to Rs. 50000 under section 80 CCD (1B) in addition to Rs. 1.5 lakhs under 80C.

d) Employer Contributions and Benefits

• Section 80CCD(2): If your employer contributes to your NPS account, you can claim a deduction under Section 80CCD(2). It should not exceed 10% of your basic salary+ DA under the old regime and 14% of your basic salary under the new regime. It is subject to a ceiling of Rs. 7.50 lakhs. This exclusive benefit is specially designed for our valued corporate clients of the corporate NPS, offering you a unique advantage that sets you apart.

Account Types in NPS

a) Tier I Account – Retirement-Focused

• Features: Mandatory for NPS enrollment, lock-in until age 60.
• Withdrawals:
  • Partial withdrawals (up to 25% of contributions) allowed after 3 years for emergencies like medical expenses or children’s education.
  • At maturity, 60% of the corpus is tax-free; 40% must be used to buy an annuity.

b) Tier II Account – Savings with Flexibility

• Features: Voluntary, no lock-in, and instant liquidity.
• Investment Benefits: Ideal for short-term goals, but no tax deductions.

How to Open an NPS Account

a) Offline Registration Process

1. Locate Your Nearest Point of Presence (PoP): These include the UTI Pension Fund Branch that assists with NPS applications.
2. Fill Out the Application Form: Complete the application form.
3. Submit KYC Documents: Provide necessary identification documents as per KYC norms.
4. Make Your Initial Contribution: Pay a minimum of ₹500 for a Tier 1 account.
5. Submit Your Application: Hand in your completed application form.

After submission, you will receive your PRAN kit via post within approximately ten days.

b) Required Documents & KYC Process

• PAN card, proof of address, and date of birth.
• A canceled cheque for bank details.

Managing Your NPS Account

a) Contribution Tracking & Monitoring

• Use the CRA portal to check balances, download statements, and track returns.

b) Changing Fund Allocation & Pension Fund Manager

• Subscribers can adjust equity exposure (up to 75%) and switch fund managers annually to optimize returns.

c) Impact of Market Performance

• Returns depend on asset allocation (equities, corporate bonds, government securities), averaging 9–12% historically.

d) Role of Pension Fund Managers

• Regulated by PFRDA, fund managers like UTI PFL ensure diversified, risk-adjusted portfolios for steady growth.

Withdrawal and Exit Rules

a) Partial Withdrawals

• Permitted after 3 years for specific needs (medical, education) up to 25% of contributions.

b) Exit Before Retirement

• If exiting before 60, 80% of the corpus must be used to buy an annuity.

c) Maturity & Annuity Options

• At 60, withdraw 60% tax-free and use the remaining 40% to purchase an annuity for lifelong income.

Why Choose UTI Pension Fund Limited (UTI PFL)?

• Proven Expertise: Decades of experience in managing retirement funds with consistent returns.
• Regulatory Compliance: Adherence to PFRDA guidelines ensures transparency and security.
• Customer Support: Efficient grievance resolution and portfolio tracking tools.

Conclusion

The NPS offers a robust framework for retirement planning, combining tax savings, flexibility, and market-linked growth. Whether you’re a salaried employee or self-employed, leveraging its benefits through disciplined contributions and strategic fund management can secure a financially stable retirement. Start early, maximise employer contributions, and partner with trusted fund managers like UTI PFL to build a lasting legacy.