RBI Issues Circular On Levying Unfair Interest Charges On Customers

Source: www.india.gov.in/

Noida-based Harshit Mishra, 45, reckons National Pension Scheme as a defined contribution system towards  retirement. At the same time, Mishra is also flummoxed over how this system works. “I want to contribute in NPS but I still need clarity on what happens after I turn 60? Also, what will happen to my corpus after I die? I am a bit confused,” he said. 

Pratibha Girish, founder, Finwise, tries to break it down here for people like Harshit.

“After you turn 60, this money can be withdrawn partially, that is 60% of the total amount in a lump sum. The rest 40% is used to purchase the annuity. Individuals can choose their fund managers themselves and purchase a pension plan. These funds will provide pension to the account holders,” said Pratibha Girish, founder, Finwise.

Nominee rule

The NPS account requires you to appoint a nominee. PFRDA rules state that up to three nominees can be appointed for your NPS Tier1 or Tier2 account.

In the event of the death of a subscriber before attaining the age of 60, PFRDA mentioned that “the entire accumulated pension wealth (100%) would be paid to the nominee / legal heir of the subscriber and there would not be any purchase of annuity/monthly pension.”

In case the subscriber dies after turning 60, then how much money will a nominee get would depend on what choice did the subscriber made before his/her death.

“If the subscriber had chosen that after his death, the nominee will receive a monthly pension then the fund manager will follow this. If the person had chosen the option of transferring the lump sum amount after death to the nominee then that option will be followed,” said Girish.

The nominee gets only the amount invested by the subscriber and not any extra benefits. Also, the nominee can file a claim with the fund manager. 

Minimum contribution of Rs 500

Through the NPS account, one can prepare a retirement corpus for the future. Interestingly, this account can be opened with a minimum contribution of Rs 500. Businessmen and individuals involved in both the government and private sector can also invest in NPS to create a secure future for them.

Girish says that NPS is a social security scheme whose aim was to bring a defined contribution scheme instead of a defined benefit scheme. 

It is also pertinent to note that the government does not contribute to your NPS account. Although, your employer can make a contribution towards this account. If your employer contributes towards your NPS then 10% of the basic and Dearness Allowance is tax exempted.