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13 Retirement Benefits for NPS Employees

Retirement is an unavoidable stage of life, and having a solid retirement strategy is important for maintaining financial security in your golden years. Employees in India can get retirement benefits under the government-sponsored National Pension System (NPS).

Various retirement benefits, including pensions, annuities, death benefits, partial withdrawals, and tax advantages, are available to NPS employees. In this post, we will discuss retirement benefits for NPS employees and how you can utilise those to plan for your future.

How NPS Works?

The National Pension System (NPS) is a voluntary contribution savings scheme for employees in India after retirement. It was launched by the Government of India in 2004 to provide retirement benefits to all citizens, including those working in the unorganised sector.

As part of the NPS, people can set aside a percentage of their salary to invest in retirement fund that include government bonds, equity shares, and corporate bonds. Professional fund managers chosen by PFRDA are responsible for the individual's contributions.

Depending on the number of contributions and success of the investments, the collected capital is used to provide the individual with a regular income after retirement.

Retirement Benefits Granted to NPS Employees

The NPS retirement benefits are designed to provide employees with financial security after retirement. The benefits of the NPS scheme are as follows:

1. Pension

Employees' pension after retirement is one of the main NPS retirement benefits. The amount of the pension is calculated based on several factors. These factors include the amount contributed, investment returns, and annuity rates, depending on the total amount accumulated in the employee's NPS account.

2. More people will benefit from NPS than earlier

The government is considering increasing the number of people who will receive benefits. Only 11% of Indians have as of yet enrolled in this post-retirement scheme. With an increase in living expenses in the present time, insecurity is common among the general population.

The main objectives of NPS are to increase confidence and give a feeling of financial security. The government is quite pleased about the new program's broad perks, including bringing in those employed within the private sector and even the self-employed.

3. Annuity

NPS employees can choose an annuity, which is a regular income paid to the employee for the rest of their life, in addition to their pension. Insurance companies set annuity rates depending on some parameters. These parameters include the employee's age, the size of the annuity, and current interest rates.

4. Partial Withdrawals

NPS employees can also make partial withdrawals from their NPS accounts for specific reasons such as medical treatment and buying a house. There are limitations on the amount and frequency of withdrawals, however. NPS employees can withdraw up to 20% of their contributions after the completion of three years from the date of opening of the NPS account. This type of NPS withdrawal is typically called “premature exit”.

5. Tax Advantages

Tax benefits are also part of the NPS employee retirement benefits. Section 80C of the Income Tax Act allows for tax deductions for contributions made to NPS accounts. Certain exemptions and deductions are available such as a deduction of up to Rs.1.5 lakh for contributions to the scheme and a tax exemption of up to 40% of the total corpus received at the time of retirement.

6. Lump-sum Withdrawal

When they retire, NPS employees can take a lump sum distribution of up to 60% of the total capital. The remaining 40% is invested in an annuity, which gives the employee a consistent income stream.

7. Flexible Contribution

NPS lets employees make flexible contributions to their retirement savings. Employees can decide whether to donate more or less to their NPS account, depending on their financial condition.

8. Portability

The NPS retirement benefits are transferable, so if a person changes companies, they can still maintain their NPS account and save money for retirement. This particularly benefits workers who might not work for a single organisation for many years.

9. Online Account Access

NPS offers online account access for employees, allowing them to keep track of their contributions and keep an eye on their retirement funds. Individuals can modify their contributions or investment choices effortlessly due to online access.

10. Tiered System

NPS operates on a tiered system, with Tier I and Tier II accounts. Tier I accounts are required and offer tax advantages and retirement benefits like pensions and annuities. Although optional and flexible regarding contributions and withdrawals, Tier II accounts do not provide tax or retirement benefits to NPS employees working in a non-government organisation.

11. Swavalamban Yojana

NPS also provides the Swavalamban Yojana, a government programme designed to encourage employees of unorganised sectors to start retirement savings. In accordance with this programme, the government offers eligible subscribers a matching contribution of up to ₹1, 000 each year for five years.

12. NPS Trust

The Pension Fund Regulatory and Development Authority (PFRDA), which controls NPS, established the NPS Trust to regulate employee contributions and ensure the security of retirement savings.

13. Automatic Asset Allocation

NPS offers an automatic asset allocation feature, which ensures that the employee's retirement savings are invested in a diversified portfolio of assets such as equities, government securities, and corporate bonds. The asset allocation depends on the employee's age and risk tolerance.

Retirement benefits for NPS employees are vital in guaranteeing their financial security after their working years. Several perks are provided by the National Pension System, which is intended to offer retired employees a constant and sustainable source of income. By availing this, individuals can relax and enjoy it easily in their golden years, knowing that their financial requirements are covered.

FAQs About Retirement Benefits for NPS Employees

Who is eligible to avail the NPS?

All employees of the Central Government, State Government, and other public sector organisations are eligible to join the NPS. Additionally, private sector employees and self-employed individuals can also join the NPS voluntarily.

What happens to the NPS account if the account holder passes away?

In the event of the subscriber's demise, the accumulated pension wealth is paid to the nominee or legal heir of the account holder. The nominee or legal heir can receive the benefits as a lump sum or a regular pension.

Can NPS employees change their pension fund managers?

Yes, NPS employees can change their pension fund managers once in a financial year. They can choose from a list of authorised pension fund managers provided by the Pension Fund Regulatory and Development Authority (PFRDA).

I am an NPS subscriber. Do I still need life insurance policy?

Yes. NPS is a retirement focused investment, while a life insurance policy provides financial protection for your family in case of an unfortunate event. They serve different purposes, and both are important.

Can I use my NPS corpus to buy a term insurance policy?

No, NPS funds are meant for retirement savings, and they cannot be used to purchase term insurance. However, you can use pension income from NPS to pay for term insurance premiums in the future.

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