The Pension Fund Regulatory and Development Authority has provided significant relief to millions of subscribers of the National Pension System.
The National Pension System (NPS), a government-supported pension program, has been providing a secure and flexible retirement planning solution to millions of Indians since its introduction in January 2004. Initially available only to government workers, NPS opened its doors to the broader public in 2009, allowing citizens between the ages of 18 to 60 to participate. The eligibility criteria are simple, with the main requirement being adherence to KYC norms.
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Under the NPS, participants can make regular contributions to their pension accounts throughout their working lives, building a corpus that will support them during retirement. Upon retiring, members have the option to withdraw a portion of the accumulated corpus in one substantial amount, while the balance can be utilized to purchase an annuity, providing a steady stream of income during their retirement years.
In a recent statement, the Pension Fund Regulatory & Development Authority (PFRDA) announced that NPS members now have the freedom to choose their Annuity Service Providers (ASPs) after leaving the NPS. Moreover, customers who buy annuities from appointed ASPs will be exempt from paying intermediary fees. This move is aimed at providing individuals with more control over their choices and streamlining the regulatory framework.
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The circular dated July 27, 2023, emphasized that NPS participants can select the annuity scheme and ASP based on their personal preferences and needs. This empowerment seeks to make the exit process from NPS simpler and more customer-centric, ensuring that retirees can make informed decisions regarding their pension options.
Sreekanth Nadella, MD and CEO at KFintech, highlighted the advantages of NPS over other annuity schemes. “NPS is a highly affordable investment option sponsored by the Government of India. It offers broad flexibility while you contribute to the investment. Indeed, the National Pension Scheme is better than any other Synthetic Investment Plan. Nevertheless, an extended investment plan is always beneficial for a better future after retirement. Besides, NPS has the potential to exempt your tax, thereby helping you save big,” said Nadella.
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Jitendra Solanki, a SEBI registered tax and investment expert, explained why investors should consider NPS. “In NPS, an investor is given the option to choose the percentage of wealth one would use for buying an annuity. However, one will have to use a minimum of 40% of the maturity amount for annuity buying, and the rest is given to the investor as a lump sum maturity amount. This is a unique investment tool that provides a mix of both equity and debt exposure in a single investment.”
