National Pension Scheme - NPS


 
 
Concept Explanation
 

National Pension Scheme - NPS

NATIONAL PENSION SCHEME: National Pension Scheme (NPS) is a government-sponsored pension scheme. It was launched in January 2004 for government employees. However, in 2009, it was opened to all sections. The scheme allows subscribers to contribute regularly in a pension account during their working life. On retirement, subscribers can withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement. Currently, any Indian citizen between 18 and 60 years can join NPS. The only condition is that the person must comply with Know Your Customer (KYC) norms. The minimum yearly contribution is Rs. 6000, which can paid either in one go or in installments of at least Rs. 500.

Types of National Pension Schemes (NPS): There are two types of accounts that NPS offers:

  • Tier-I Account: It is a basic pension account with limitations on withdrawal. "Before attaining 60 years of age, only 20% of the contribution can be withdrawn while the rest 80% has to be necessarily used for buying annuity from a life insurer. Annuity is a series of payments made at fixed intervals of time. Annuity plans necessitate the insurer to pay the insured income at regular intervals until his death or till maturity of the plan. After attaining the age of retirement also (60 years), close to 60% contribution can be withdrawn and the rest 40% again has to be used to purchase annuity from approved life insurers.
  • Tier-II Account: It is a voluntary savings option from which a person can withdraw money up to full amount.
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