Financial freedom for your golden days; 4 benefits of NPS scheme

As part of the theme, the government is taking steps to implement policies to help Indians become self-reliant, another ambitious vision of PM Modi, AatmaNirbhar Bharat.

The primary foundation of self-reliance is financial freedom and security. While this might not seem to be a problem during our working years, it can prove to be a difficult goal after retirement.

This is where the Pension Fund Regulatory and Development Authority (PFRDA) has stepped in and brought about some exciting changes to the National Pension Scheme (NPS).


PFRDA’s NPS Diwas

In September 2021, the PFRDA announced that October 1 of each year would be celebrated as NPS Diwas, kicking off its campaign under the Azadi Ka Amrit Mahotsav initiative.

The aim was to promote retirement planning for a stress-free and
azad retired life.

Through this celebration, the pension regulator intends to motivate Indian citizens, whether salaried or self-employed, to plan towards building a cushion for financial security in their golden years.

The way to encourage citizens to take on retirement planning as soon as possible is by creating awareness about the benefits of investing in a reliable pension scheme.

Over the long term, even small but regular investments could lead to a good corpus of funds for retirement due to the power of compounding. The pension regulator has kept inflation in mind, along with the depreciation of the rupee, so that its schemes can offer investors inflation-proof returns.

“Over a 13-year period, we have given a compounded annual growth of more than 10 per cent — 10.27 per cent to be precise. Always, we have given investors inflation-protected returns,” stated Supratim Bandyopadhyay, Chairperson at PFRDA.

Plus, they have the freedom to defer annuity purchases up to the age of 75. Account holders can also choose to exit the scheme prematurely, after 5 years of joining, while the investment choice can be revised up to 4 times within a financial year.

How does NPS give financial freedom?

The National Pension Scheme (NPS) was opened up for all Indian citizens in 2009. It allows account holders to contribute regularly to a pension account throughout their working years.

On retirement, they can withdraw a part of their accumulated funds in a lump sum while using the remaining amount to buy an annuity.

This annuity then gives them regular income through their retirement years. The minimum annual contribution towards the scheme is as little as Rs 1,000


Some key benefits offered by NPS are:

• Simplicity: It is incredibly easy to open an account and receive a Permanent Retirement Account Number (PRAN). The entire process is digital. This unique number will stay with the account holder in their lifetime.

• Flexibility: There are various investment options and pension funds to choose from. Plus, investors have the freedom to switch from one investment option to another or one fund manager to another.

• Portability: With the NPS, you get seamless portability when you change jobs or locations, with hassle-free transfer of the scheme to the new job/location.

• Power of compounding: This feature allows for wealth creation as each successive interest payment is made on the total funds in the account, rather than only on the initial investment capital.

• Online access: It is easy to open and manage an account through the online portal. Account holders can also make their contributions to the scheme online.

Most importantly, the NPS is closely monitored by the PFRDA, with transparent norms and regular performance reviews. Additionally, the maintenance costs are the lowest among similar schemes worldwide.

With the maximum joining age now being raised to 70 years and the exit age to 75 years, it is never too late to plan for a stress-free retirement.

(The author is MD & CEO, Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)