NPS Vatsalya: All you need to know about the new pension scheme for minors

What is the NPS Vatsalya scheme?

FM Sitharaman announced the scheme in the Union Budget back in July as an extension to the pre-existing National Pension Scheme to help parents plan for their children’s future from the start.

The scheme, managed by the Pension Fund Regulatory and Development Authority (PFRDA), enables parents to plan for their children’s future by investing in their retirement fund.

“This new initiative is designed to start early in securing the financial future of children, marking an important step in India’s pension system. The scheme will be run under the Pension Fund Regulatory and Development Authority (PFRDA),” the release said.

The minimum contribution for the scheme is ₹1000 per year to make the scheme accessible to all income groups. Moreover, there is no upper limit for investment in the plan.

The eligibility criteria for the scheme is that one must be a citizen of India and the child must be under the age of 18.

“NPS Vatsalya will allow parents to save for their children’s future by investing in a pension account and ensure long-term wealth with the power of compounding. NPS Vatsalya offers flexible contributions and investment options, allowing parents to make an investment of Rs. 1,000 annually in the name of the child, thus making it accessible to families from all economic backgrounds,” the release added.

NPS Vatsalya withdrawal rules

According to the information available on the website of the Central Bank of India:

The funds invested through the scheme can be withdrawn both before and after the child turns 18. As long as the beneficiary is a minor, partial withdrawals are allowed after three years of joining the scheme, and up to 25% of the total invested amount can be withdrawn. These withdrawals are allowed a maximum of three times before the child attains the age of 18. They can be made for various reasons including education, health issues, disability, etc., according to the PFRDA.

After the beneficiary turns 18, the account can be continued by converting it into a regular NPS account. Importantly, the Know Your Customer (KYC) should be completed within 3 months of attaining the said age. If the subscriber wishes to close the account, 80% of the invested amount must be invested in an annuity plan if it is above ₹2.5 lakh, and the rest can be withdrawn as a lump sum. If the invested amount is below ₹2.5 lakh, it can be withdrawn fully.

NPS Vatsalya launch

The release mentioned that the Finance Minister will also be launching an online platform for the scheme through which interested citizens can subscribe and will distribute Permanent Retirement Account Number (PRAN) cards to new minor subscribers.

Along with the launch in New Delhi by the FM, NPS Vatsalya events will be held at nearly 75 places across the country.

Other events will join the main launch through video conferencing and distribute PRAN membership cards to new minor subscribers in those locations.

“The launch of NPS Vatsalya highlights the Government of India's commitment to promote long-term financial planning and security for all. It’s a big step toward making India’s future generations more financially secure and independent” the release noted.