National Pension System: 3 reasons to invest in this retirement savings scheme

The National Pension System (NPS) is a voluntary retirement savings scheme designed to ensure financial support for the golden years of investors. It helps individuals plan for their retirement years by allowing them to save at regular intervals during their employment period.

The flexibility offered by the NPS makes it one of the most preferred retirement planning savings instruments. It’s also considered a more secure investment option as the scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA), the apex regulatory body for all pension schemes in the country.

Investors can tailor their asset allocation strategies to match their individual retirement goals by selecting from a range of investment options. This allows the scheme subscribers to optimise their resources and gradually accumulate a sizable retirement fund.

Investors can withdraw a portion of their accumulated savings or purchase a life annuity from a PFRDA-approved life insurance company, ensuring a regular income stream and a secure retirement.

Here are three reasons to consider investing in NPS:

1) Flexibility and control

Investors can change their asset allocation up to four times a year under NPS. The investors can switch between funds, choose fund managers and change the point of presence (PoP). This allows rebalancing your scheme portfolio across asset classes like debt, equity, corporate bonds and government securities, to maximise returns.

To appeal to younger investors and those with greater risk appetites, NPS has also raised the equity investment cap from 50% to 75%. Investors can take advantage of the low-cost structure far into their retirement years by contributing to the NPS until the age of 70 and delaying the withdrawal of the 60% tax-free portion of their corpus until they turn 75.

2) Liquidity

NPS offers liquidity and permits partial withdrawals in certain situations, such as emergency medical care, children’s marriage or education, house construction or buying a property. But, there are a few conditions:

• To be eligible for withdrawals, an individual must have subscribed to NPS for at least three years.
• An investor can withdraw up to 25% of their deposits (excluding employer contributions) at any time.
• Partial withdrawals are capped at three times during the entire lifetime of the NPS account.

In conclusion, start investing in the National Pension System to ensure a secure retirement and confidently embark on your path to financial independence.

3) Tax benefits

NPS provides several tax benefits that increase savings. Here are the few tax benefits that investors can enjoy by investing in NPS:

• NPS contributions are eligible for exemption under the overall limit of ₹1.5 lakh u/s 80C of the Income-Tax Act, 1961.
• The self-contribution portion is eligible for deductions under the ₹1.5 lakh limit of Section 80 CCD (1).
• Investors can also enjoy an additional deduction of up to ₹50,000 under Section 80CCD (1B).
• For private sector employees, the employer's contribution (up to 10% of the basic salary + DA) is eligible for deduction u/s 80CCD (2). This is capped at ₹7.5 lakh per annum.