National Pension System (NPS)

Q Why is it in News ? 

The National Pension System (NPS) will no longer compel investors to convert 40% of their accumulated retirement corpus into an annuity. An annuity is a long-term investment that is issued by an insurance company and is designed to help protect you from the risk of outliving your income. Through annuitisation, your purchase payments (what you contribute) are converted into periodic payments that can last for life.

Q Why such a move? 

• Poor yields on annuities and high inflation are translating into negative returns.
• Since annuities are taxable, deducting the tax and factoring in inflation means annuities are yielding negative returns.

Q What is National Pension Scheme (NPS) Scheme? 

• NPS is a government-sponsored pension scheme. It was launched in January 2004 for government employees.
• It was extended to all citizens of Indian on a voluntary basis from May 2009 and to corporates in December 2011 and to Non-Resident Indians in October 2015.
• PFRDA is the statutory authority established by an enactment of the Parliament, to regulate, promote and ensure orderly growth of the NPS and pension schemes to which this Act applies.
• The scheme allows subscribers to contribute regularly in a pension account during their working life.
• On retirement, subscribers can withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement.

Q Who can join NPS? 

• Any Indian citizen between 18 and 60 years can join NPS.
• The only condition is that the person must comply with know your customer (KYC) norms.
• An NRI can join NPS. However, the account will be closed if there is a change in the citizenship status of the NRI.
• Any Indian citizen, resident or non-resident and OCIs are eligible to join NPS till the age of 65 years.