National Pension Scheme offers coverage with choice of investment

National Pension Scheme (NPS) is a pension system primarily for individuals working in the private sector. The scheme offers a way for individuals to save for their retirement. However it is not exclusively meant for individuals engaged in the private sector but is also open to all central government employees who joined service after January 2004.

NPS contributions will be made as per defined contribution and the record keeper will be the National Security Depository Limited. There are six fund manager will have been entrusted to run different investment plans, such as equity and G-Secs. Investors have a choice of asset classes as per their requirement.

The scheme is open to all citizens of India, whether resident or non resident and aged between 18-55 years on the date of submission of the application. Investors can open accounts in 22 entities prescribed by PFRDA including LIC, State Bank of India, ICICI Bank and UTI Asset Management.

A minimum of 10 per cent every year will be allowed to be withdrawn in a phased manner every year. If an account holder withdraws any time before the age of 60 he has to compulsorily annuitise 80 per cent of his accumulated pension and such sum should be used purchase annuity from any Insurance Regulatory and Development Authority regulated life insurance company.

On attaining normal retirement age of 60 years account holders will be required to compulsorily withdraw at least 40 per cent of their pension wealth and the remaining 60 per cent can be withdrawn as a lump sum or in a phased manner.

The balance 20 per cent can be withdrawn as a lump sum. In the unfortunate event of death of the account holder at any time, he nominee can exercise the option to receive 100 per cent of NPS pension wealth in lump sum.

If the nominee would wish to continue with the NPS, he or she would have to subscribe to NPS individually.

The NPS offers subscribers two options – Active choice and Auto Choice.

Under the Active choice investors can choose the proportion of their monies going into equity, credit risk bearing instruments and government security.

Investors can also choose fund managers from a basket of six. However, if a subscriber wishes to invest in equity his investment would be limited to index funds tracking the BSE Sensex and S&P Nifty and subject to a limit of 50 per cent of investors' money

In case the participant is not able to choose the asset allocation, the contribution would be invested in 'Auto Choice'. In this category the investment would be determined by a predefined portfolio.