Pension without a Government Job?
Pension without a Government Job?
NPS Makes It Possible
The good news is that as per a United Nations report life expectancy in India has improved from 32 at the time of Independence to 65 at present, and is expected to touch 75 by 2050. The other side to this development is that one of the youngest nations of the world will also have a large number of elders in the years to come. Understandably, most of you born on this side of the world – where a social security system assuring ‘cradle to grave’ security is donkey’s years away and cost of living is constantly increasing– are planning something or the other for financial security in old age. It is in this context that Consumer Voice brings to you an in-depth analysis of the National Pension System (NPS) that was started with the objective of providing retirement income to all citizens.
Launched on 1 January 2004, the National Pension System was initially meant for government employees – except the armed forces – joining government service on or after 1 January 2004. Subsequently, on 1 May 2009, the NPS was opened to all citizens – they could now join the scheme on a voluntary basis.
The NPS is a ‘ defined contribution’ pension scheme – this means that a customer will invest a predefined sum every month in a fund chosen by them and at the time of retirement will have a
lump-sum amount depending on the performance of that fund. This is different from the earlier pension system where the amount one received every month after retirement was determined by the government and increased periodically (also called defined benefit system). Under the NPS, after retirement one will have to depend on their corpus for their monthly pension.
It is basically a market-linked retirement investment product with a structured setup. NPS accounts can be opened through intermediaries called points of presence (PoP), commonly known as service-providing branches/offices (of banks and NBFCs). They are also authorized to receive contributions. Such individual contributions are pooled into a ‘pension fund’ that is invested in the market in approved securities.