Should senior residents put money into NPS after the revised guidelines?

The Pension Fund Regulatory and Development Authority (PFRDA) just lately revised the entry and exit pointers to ease funding within the National Pension Scheme (NPS) for senior residents. As per the brand new guidelines, the entry age for NPS has been revised to 18-70 years from the sooner 18-65 years. This means you can be a part of NPS even in case you are 70 years of age. But how a lot will it allow you to as a senior citizen? Let us perceive.
What is NPS?
The National Pension Scheme or NPS is a long-term retirement funding plan, voluntary in nature, and offers a social safety cowl within the type of a month-to-month pension to employees put up their retirement. An particular person with a minimal age of 18 can open an NPS account and must proceed along with his contribution until retirement to avail of a month-to-month pension. Post-retirement, the account holder can withdraw 60 per cent of the corpus tax-free. However, the remaining 40 per cent is required to mandatorily buy an annuity from PFRDA-registered insurance coverage corporations to get a month-to-month pension post-retirement.
What are the just lately revised pointers of NPS?
Before the brand new guidelines, any Indian citizen (each resident and non-resident) within the age group of 18-65 years can be a part of NPS. The revised guidelines have elevated the entry age. Take a glance:
Extension of Entry age: In its revised pointers, PFRDA has elevated the entry age as much as 70 years in opposition to 65 years earlier. Therefore, as per the revision, the present age of entry which is 18-65 years has been revised to 18-70 years. Those subscribers who’ve closed their NPS accounts are permitted to open new NPS accounts as per the elevated age eligibility norms.
Equity Exposure capped at 50 per cent: NPS permits funds to put money into fairness belongings as properly, however with a cap. There are two choices given to subscribers (traders) — Auto Choice and Active Choice. Choosing Auto Choice by default restricts allocation to fairness at 15 per cent whereas in Active Choice, one can determine upon allocation relying on the cap – which is mostly 50 per cent to 75 per cent. It is capped at 50 per cent for presidency staff. The subscriber, becoming a member of NPS past the age of 65 years, can train the selection of pension fund (PF) and asset allocation with the utmost fairness publicity of 15 per cent and 50 per cent below Auto and Active Choice, respectively, in keeping with PFRDA. The PF may be modified annually whereas the asset allocation may be modified twice.
Normal Exit: Further, the conventional exit for such subscribers will likely be after three years. However, because the rule suggests the account holder who joined NPS after 65 years of age will likely be required to utilise a minimum of 40 per cent of the corpus or buy of annuity whereas the remaining may be withdrawn as a lump sum. But, if the corpus is Rs 5 lakh or much less, the account holder could choose to withdraw your entire accrued pension wealth.
Premature Exit: In case of untimely exit that’s earlier than 3 years, the subscriber must utilise a minimum of 80 per cent of the corpus for buy of annuity and the stability quantity may be withdrawn in a lump sum. However, if the corpus is Rs 2.5 lakh or much less, the account holder will likely be eligible to withdraw your entire accrued pension wealth.
In the occasion of the account holder’s demise, your entire corpus will likely be paid to the nominee as a lump sum.
What is an annuity in NPS?
Buying an annuity is necessary post-retirement through the use of 40 per cent of the corpus on the time of retirement for receiving a month-to-month pension. Simply put, an annuity is an insurance coverage contract that provides a set earnings stream for an individual’s lifetime. Under the NPS, a sure sum is required to purchase the annuity plan for a pension from PFRDA-registered insurance coverage corporations. Annuities work by changing a lump sum quantity into a set stream of earnings.
Should senior residents put money into NPS after the revised pointers?
Revisions made in NPS pointers have been made to make this pension funding instrument extra interesting to the present subscribers and senior residents who’ve attained superannuation. This additionally permits them to put money into equities for an extended time and earn higher returns than conventional devices resembling fastened deposits.
That being stated, senior residents ought to put money into devices that present them assured returns and simple liquidity. NPS comes with a lock-in throughout, and after the funding interval as properly when it’s a must to make investments mandatorily in annuities. So for senior residents liquidity could also be a difficulty due to the lock-in phrases.
Secondly, the returns on NPS should not assured in contrast to many different devices meant for senior residents resembling SCSS or PMVVY that supply assured returns.
Thirdly, investing in NPS by senior residents will not be as helpful in comparison with a younger investor whose cash can have an extended length of funding to get higher returns on. Considering the age of a senior citizen, they are going to have little or no time to stay invested to get greater returns. On the opposite, their returns could also be harmed by market volatility throughout a brief funding tenure. Also, the obligatory annuity buy clause takes away senior citizen’s maintain on their complete corpus, which will not be the case with different devices.
Finally
On the tax-saving entrance, funding in NPS is very efficient as contributions made by account holders are eligible for tax advantages below Section 80C and Section 80CCD of the I-T Act. You can declare a deduction of as much as Rs 1.5 lakh on your contribution in addition to for the contribution of the employer below Section 80C. Additionally, you may declare a deduction for a self-contribution of as much as Rs 50,000 below Section 80CCD of the I-T Act. Therefore, investing in NPS may also help you declare a tax deduction of as much as Rs 2 lakh in complete.
But for senior residents, tax-saving has restricted advantages and shouldn’t be the primary criterion for funding until they consider they’ve a protracted working life forward of them, which might enable them to stay invested and earn higher market-linked returns.
The greatest thought can be to diversify your investments to minimise dangers and safe an optimum and regular return out of your investments.
The creator is the CEO at BankBazaar.com. Views expressed are that of the creator.