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Welcome to NationalPensionScheme.com.
If you are looking for any details about NPS scheme/ National Pension System/ National Pension Scheme in India then you have come to the right place.

NationalPensionScheme.com is an investor-centric blog dedicated to bringing you all the latest details regarding this retirement planning scheme. On this page you can find the following:

  • A list of our most relevant posts or pillar posts to help you easily navigate through the blog
  • Our motivations for writing about NPS
  • A brief description of the NPS scheme and who is the blog for

Our Pillar posts:

We have compiled a list of our most relevant below. You can think of these as the “pillar posts”, which cover all the essential details of NPS that you need to know.  Even if you are a complete newbie to NPS, you can read these in chronological order to get a detailed understanding of NPS. Or you can use this as an index to deep dive into a specific topic. Within each post, you will find links to other posts that cover that specific topic in more detail.

NPS or National Pension Scheme: All details on this retirement planning scheme

Can NRIs invest in NPS

How to open an NPS account

NPS Tax Benefit explained with examples - Updated for 2019

NPS Withdrawal Rules and Applicable taxes - Updated for 2019

NPS Investment Options: Build the best NPS portfolio for your needs

Free Downloadable NPS Excel calculator - Calculate your NPS Pension amount


Hope you find NationaPensionScheme.com useful. Happy reading!!


To know more about the NationalPensionScheme.com blog, read on:

What is the NPS scheme?

NPS or the National Pension Scheme is a relatively recent pension scheme launched by the Government of India. It was initially started only for Government employees who joined service after 01 Jan 2004 but was opened to all citizens of India in 2009. It is a voluntary scheme.

Why are we writing about NPS?

NPS is one of the multiple investment schemes run by the Indian Government. Purely from an investment perspective, it is probably not the most attractive scheme available. Then why have we started a full blog dedicated to the National Pension Scheme. Because we believe that this Scheme has the potential to become the most important government run investment scheme in this country and it will play a key role in making India a fully pensioned society.

The NPS is modeled on the universal pension schemes that are operating successfully in many developed countries such as the US, UK, Japan and Singapore. Compared to other government schemes such as EPF, PPF , Sukanya Samriddhi Scheme etc.,  it is more free market and  modern its approach. Even some of the less attractive features, such as stringent exit conditions are, we believe, necessary. The NPS product, in other words, is “built to last.”

We would like to highlight 4 features in  particular:

1. NPS is a defined benefit scheme not defined contribution which makes it sustainable: 

Any pension scheme can be defined benefit or defined contribution. In a defined benefit scheme, the corpus that a retiree would receive is already predefined based on their salary, years of service, age etc. (i.e. the ‘benefit is defined’). Since both the contributions and benefits are known beforehand, it is equivalent to fixing a rate of return. The EPF is a defined benefit pension plan where the rate of interest is announced explicitly every year. The rate of return in a defined pension plan is fixed. But to achieve this rate of return the pension scheme invests in securities markets such as equity and debt which are inherently volatile. And there lies the problem. Defined benefit plans can very easily become underfunded – a situation where the actual returns generated by the pension fund are less than the promised return. In such a situation the pension scheme has no option but to pay the difference to the current retirees from the contributions of the future retirees who are still working and contributing. However this just pushes the problem into the future and in fact makes it bigger because now the fund has to generate an even higher return on the contributions of future retirees to make good on its payments. This can overtime escalate into a chronic pension crises. It was because of this problem that some of the largest pension programs in developed countries have shifted to defined contribution pension plans.

In a defined contribution pension plan, only the employees’ and the employers’ contributions are fixed or defined. The final pension corpus depends on the rate of the return that the portfolio earns. While the defined contribution pension plan may seem worse for employees because there is uncertainty around the final retirement corpus, these are the only pension schemes which are sustainable in the long-run. NPS is a defined contribution pension plan.

2. It embraces equity markets fully which is how it should be in any long-term savings product: 

EPF, PPF, Sukanya Samriddhi all have long lock-in periods but they are debt-based products which pay a fixed rate of interest. While these rates of interest are attractive compared to what investors can get in debt market (for similar risk profile), they are still low compared to the returns that a long-term investor can earn from equities. Financial theory tells us that investors with long-tem horizon (>5-7 years) should invest a significant portion of their corpus in equities. NPS allows you to do that. With NPS, you can invest as much as 75% of your retirement portfolio in equities. Not only that, under the automatic investment option, NPS gradually shifts your asset allocation from equity to debt as you approach retirement – again in line with financial theory.

3. It does not allow for easy early withdrawals and stresses on annuity purchase: 

This may be a controversial point. We have seen many advisers who consider this to be a deal-breaker to investing in NPS. However it is our belief that this is a feature not a bug! Let us explain. While on the face of it, this rules seems like it is restricting the investor’s freedom but it may actually be making him better off.

First, let us consider early withdrawal. Early withdrawal from NPS is tough. But it is there to prevent investors from taking actions which may be harmful for them in the long run. Retirement is a very important goal but it is also a distant one. And it is human nature to prioritize the urgent over important. So while an investor may have made a careful plan about how much they want to save for their retirement but during an emergency he/she may dig in to the retirement corpus without realising that they have hampered their retirement goal (cue to all the Bollywood movies where old parents break their PF accounts to satisfy their progeny’s needs). As a result most pension plans, like the NPS, make withdrawal difficult.

Second the stress on annuities. Again we have come across so many commentaries on NPS which criticise the annuity aspect. Yet the NPS has an annuity requirement for good reason. What is the single biggest risk you face at the time of retirement? The longevity risk which is just jargon for the risk that you may live longer than what you had planned for and hence you will run out of your retirement money! Annuities protect you against this risk by giving you a predetermined income for as long as you live. In any society with universal pension, the Government wants to avoid a situation where you find yourself penniless during retirement due to bad investments and hence they insist that a certain amount of money should be invested in annuity to guarantee a basic minimum income at all times.

4. It is low-cost and efficient: 

The Government has gone out of its way to ensure that the costs on NPS remain low. One way this has been achieved is by following an unbundled architecture – where instead of everything being done by one government entity in-house, parts of the value chain – such as recordkeeping, fund transfers, fund management and custodial services –  have been hived off to specialised players through a competitive bidding process. For instance pension fund management has been handed over to private sector players such as SBI, HDFC, ICICI who are already in the investment management/mutual fund business. Recordkeeping is done by CRAs such as Karvy and NSDL who are already in this business. Government role (through the PFRDA and NPS trust) has been limited to ensuring that there are adequate checks and balances in the system. Lower costs directly translate to higher returns. But unfortunately it also means that almost nobody has an incentive to sell NPS compared to other higher commission products such as ULIPs.

All this is not to say that NPS scheme is perfect. There are still many gaping holes – for instance the annuity markets in India are still underdeveloped because of which rates are not as high as they can be, or the tax treatment of NPS vis-a-vis PPF or EPF leaves it at a disadvantage. However the rules for the scheme are being updated regularly and it is our belief that these disadvantages will only reduce or disappear over time. On the other hand we will stick our neck out here and say that other schemes such as EPF or PPF which are really remnants of an economy where government controlled everything (the ‘mai-baap sarkaar’) will gradually be phased out.

Therefore we are writing this blog – to provide comprehensive details on what we think is a young but very important government scheme. Since the rules and regulations are constantly being updated, we also strive to provide you the most up to date information on this blog.

Who is this blog for?

A downside of the low cost of NPS is that there are very few people in the system – agents, banks etc. who have an incentive to sell you NPS. Hence investors will have to rely on independent resources to learn more about investing in this scheme. NationalPensionScheme.com aims to be such an investor-centric resource.

This blog is right for you, if you are somebody:

  1. Who just wants to learn more about the NPS scheme
  2. Who wants to make up your mind about it
  3. Who has decided to invest in the scheme and would like more info on how to go about creating you NPS account make contributions to it etc.
  4. Who is already invested in the scheme and would like to keep track of your performance relative to your retirement goal
We endeavour to keep this blog constantly updated with the latest regulatory changes to the scheme so make sure your keep checking regularly. 

Contact

You can write to us at contactnationalpensionscheme@gmail.com or get in touch with us using the contact form on the right.

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