The National Pension System (NPS) is a voluntary pension plan allowing investors to use a single investment tool to get exposure to debt and equity. In the new pension system, an investor can decide to keep up to 75% of their money in stocks and take out up to 60% of the maturity amount when they retire. The remaining 40% will buy annuities to pay NPS account holders a monthly pension. Recently, the Pension Fund Regulatory and Development Authority (PFRDA), which is in charge of pensions, allowed some changes to the NPS rules. This article contains a list of the most important changes that NPS account holders should know about.
Changes to the New Pension System
This is a list of 10 important changes that have been made to the new pension system:
- Increased Age of Entry The new pension system has changed its rules, making the maximum age of entry to join the NPS 70 years. Previously, the maximum age limit was 65 years. The age range to join NPS has changed from 18 to 65 to 18 to 70. PFRDA issued a notice recently that displayed the revised guidelines, stating that any Indian or OCI up to the ages of 65 and 70 can join the NPS.
- Exit Rules According to the NPS scheme’s latest news, it is stated that users will be required to use at least 40% of the corpus to buy an annuity. They can then take the rest as a lump sum. If the corpus is less than Rs. 5 lakh, users can withdraw the entire pension in one lump sum.
- Dividing AssetsThe PFRDA has made the NPS more appealing to people who join after they turn 65. PFRDA allows them to place up to 50% of their funds in stocks. People who join the NPS after 65 can only risk 15% of their money on stocks.
- Premature ExitThe PFRDA has stated that quitting before 3 years is considered a premature exit. With this option, users must buy an annuity with at least 80% of the corpus. They can use the remainder, which they can withdraw in one lump sum. If a user leaves early and the balance is less than Rs. 2.5 lakh, the user can withdraw the entire amount.
- Contributing to an Account at the Age of 75NPS account holders can contribute to their accounts until they are 75 years old.
- Online ProcessThe PFRDA recently allowed government users to cancel their plans online. Only non-government users could use the online exit process before. The online exit is linked to ‘Instant Bank Account Verification’ as a user benefit. Employees of central and state governments and autonomous bodies can also use the service.
- Benefit of e-NominationOnce the nodal officer receives your application, he or she can either accept or reject it. Your request is forwarded to the Central Recordkeeping Agency (CRA) if the officer does not act within 30 days.
- No Maturity Annuity Proposal NeededThe Insurance Regulatory and Development Authority (IRDAI) has stated that buying an annuity no longer requires a separate proposal form.
- Digital Life Certificate Through Jeevan Praman, you can send digital life certificates online. Each year a pensioner receives money, they must send a life certificate, which they can do digitally.
- Credit Card ContributionAccording to the NPS scheme’s latest news, people with NPS accounts in Tier-2 cities will be unable to contribute using credit cards after August 3, 2022.
Structure of the New Pension System
The NPS has a two-tier structure. You can open a Tier I account, but you are not required to open a Tier II account. Compared to the Tier I account, the Tier II account gives users more freedom. Tier II accounts permit withdrawals at any time, whereas Tier I accounts are restricted and subject to more stringent rules. There is no extra fee to maintain a Tier II account, and you have the option to move your money to a Tier I account if you prefer.
The NPS gives you four ways to invest, from debt to equity. These options are:
- Equity: This is a high-risk instrument.
- Government Securities: This is an instrument with low risk.
- Corporate Debt: This is considered medium risk.
- Alternative Investment Funds: This involves infrastructure and real estate investment trusts.
The Difference: The Old vs. New Pension System
There are 3 key differences between the old and new pension system:
The new pension system relies on investment returns. The government has taken several steps to protect the interests of NPS members, and the new pension system contains a variable investment pattern, a regulator, and a modern, low-cost NPS design.
In the first case, the benefit is fixed. It indicates an employee’s pension is dependent on their last wage and service. This required contribution amount is calculated backward based on the money that will be owed in the future. In addition, the employer and the government are both contributors. But after a certain date, the government of India stopped providing this benefit to new employees. It started giving them benefits through the Employees Provident Fund, which includes another pension plan called the Employee Pension Scheme.
In the NPS, an employee’s contribution stays the same. Users deposit a fixed sum or a portion of their salary each month. Since everyone is free to give, they can also change the amount at any time. Since this fund can invest in stocks, it is an opportunity to make money.
The new pension system is beneficial for retired employees. This new pension system allows people to enjoy certain financial benefits after they retire. People’s monthly wages are deducted while they work, and these funds are returned to them as pensions when they retire. Several other benefits, such as health plans, are also part of the new pension system. People can benefit from the new pension system if they follow the rules and requirements. For more information on the new pension system and the NPS scheme’s latest news, visit Piramal Finance to receive more information and guidance.
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