National Pension System is basically a government-run, fully-funded defined benefit pension scheme in India. The National Pension System, just like PPF and EPF are a tax-free ERS instrument in India where only the corpus escaping tax at maturity is taxed and the whole pension withdrawal amount is tax free. Employees are eligible for this pension scheme only if they are working in the government sector or are covered by any government social security program. It is not open to the private sector employees.
The National Pension Scheme Is Universal Allocation Funds
All those individuals who are covered under the National Pension System but are not drawing benefits from any government program are allowed to opt for the national pension scheme’s universal allocation funds. This is a special fund that is allotted on the basis of asset base and earnings experience. Under such a fund people get the liberty to decide how they want to use the fund. However, if one wishes to withdraw all the funds at once then he/she has to first pay a lump sum amount to the controller. The controller will then disburse the remaining funds of the fund on behalf of the public.
In most of the cases, the annuities that are made available through the national pension scheme are tax-exempt. This means that the tax on the returns is low as compared to the ordinary taxable income of the individual. Annuity schemes based on the performance index come with low rates of interest. There are several schemes based on the compound growth index also available.
As far as the investments in the investment instruments are concerned, the government-sponsored pension scheme and the EPF are both highly sheltered. In the case of the former, the retirement assets are mainly of industrial character. They make up a major chunk of the total value of the fund. In the case of the EPF, it comes under the collective saving scheme. Though both of them offer very good returns, they are not comparable to the other two.
There are certain details that should be kept in mind by anyone who wants to make the investments for the national pension scheme returns. One of the first things is that the returns should be in line with the allowance invested. The total allowance is equal to the former plus the latter plus the net worth of all the investments done in the pension plan. In case of the former, the allowance is calculated on the basis of wage earner and other similar benefits. The earnings and other deductions in the former do not affect the EPF and pension scheme returns.
There is another point of view which is slightly different but equally important. It is called the equity allocation. Equity allocation ensures that only the money needed for the investments makes its way into the investments. That means that the earnings and other profits from the investment are not used as the source of additional funds. This is a necessary part of the whole process. If the scheme has no investment facility, the money in the scheme will be invested in government bonds to generate income.
When it comes to the investment itself, people can take the opportunities offered through the universal credit contributions and the universal passbook. These are the basic salary assurance schemes. All these plans are based on a certain contribution made by the employer. In this regard, both the national pension scheme account and the personal account of the employee have their own contributions. Only those amounts that have been allocated by the employer are taken into account while computing for the contributions made.
After all the contributions have been made and the fund manager has disbursed the same to the scheme members, the members will receive their payments. It is the job of the scheme administrator to ensure that the payments are made on time. The whole process may seem a little complex, but it is far from being so. It is the job of the members of the scheme to read the rules and regulations regarding the investment and the contribution of the employers. All such details can be understood only if the members are well versed with the legal terms that are used during the same.