National Pension System (NPS) is a defined contribution retirement savings product introduced to promote old age income security
- Under the NPS, individuals can accumulate a pension corpus during their earning/employment phase in order to meet financial needs post retirement. The corpus would grow and accumulate over the years, depending upon the returns earned on the investments made.
- The subscribers to NPS may utilise the accumulated pension corpus under the scheme to purchase a life annuity from a life insurance company. Alternatively, depending upon the age of the subscriber, a part of the corpus may be withdrawn as lump sum.
Retire from work. Not from life.
A retirement plan helps to ensure that the subscriber will continue to earn a satisfying income and enjoy a comfortable lifestyle, even when he/she is no longer earning.
Need for a retirement plan
- Longer retirement years: Average life span is expected to keep rising in India and hence, the retirement years are likely to be longer. With the rise in inflation higher monitory resources would be needed for living a comfortable life.
- Independence is the new way of life: India is witnessing increasing number of young professionals moving away from the traditional joint family structure. In the absence of support from family there is a need for a stable income during their retirement years.
- Costs set to soar: In a period of high inflation, rising costs causes imbalance in the budgets of even a well earning person. With cost of living rising consistently, one can imagine future impact of the same at the time of retirement. A retirement benefit plan provides a steady income every month, to arm the subscriber in the face of rising costs.
- Non-earning retirement phase is now longer: Only 4% of Indian working population - majorly consisting of government employees enjoy benefits of pensions. The remaining 96% population comprises of self-employed and salaried professionals who do not have a formal, mandated provision for pensions.
- Tax Benefits: Employer Contribution upto 10% of salary (Basic+DA) to NPS is exempt from tax under section 80CCD(2) of Income Tax Act, 1961. Further deduction under section 80C towards contribution upto 1 Lakh can be availed by subscribers under the prevailing tax laws.
Why should one start planning for retirement early?
- The earlier the subscriber starts planning for retirement, the larger will be the corpus at the time of your retirement. Neglecting retirement needs can prove to be costly later in life.
- With age, expense will tend to increase and therefore retirement planning becomes more difficult.
- Apart from the benefit of a comfortable retirement, the subscriber can also enjoy tax benefits as he / she plans and invests for retirement as per prevailing tax laws.