Looking for Retirement Plans? Choose from the two Government initiatives, NPS or SCSS

Retirement

“Retirement is when you stop living at work and start working at living.”

A frequent question in the minds of people today is: Do I have enough funds to retire? What will I do when I retire?

The whole point of getting high degrees, building a decent career, aiming for high salaries, saving incomes, making a wise investment and various other activities in our life are done with the intention to have a peaceful lifestyle once we retire.

We commonly hear our parents say, “I don’t want to be dependent on my children when I retire” or “I want to go on a European trip when I retire” and many such aspirations. Some have financial desires and some just want to be financially independent rather than being a burden to anyone.

Besides, retirement is a stage everybody goes through in their life, be it a government or a non-government employee.  

To provide for all these needs, it is genuine that retired or senior citizens wish for post-retirement income. This is when small saving schemes provided by the Government of India becomes absolutely necessary.

One such Scheme is:

“Senior Citizen Savings Scheme”.

The Senior Citizens Savings Scheme (SCSS) is a scheme protected and backed by the Government of India to provide regular income for senior citizens of India. Since it is provided by the Government, this scheme is a risk-free tax saving investment, which is generally preferred amongst the retired audience.

“National Pension System (NPS)”

The National Pension System (NPS) is yet another instrument provided by the Government of India, with the intention to provide pension opportunity to every Indian and to inculcate the habit of saving especially for retirement.

This article aims at answering a few typical questions that senior citizens would have about SCSS and why one should consider NPS as a better option.

Who can invest in these instruments?

  • One has to be a citizen of India to be eligible for SCSS.
  • Must fulfill any one of the below age criteria:

a). Senior citizen aged 60 years or above.

b). Retirees who have opted for the Voluntary Retirement Scheme (VRS) or Superannuation with the age between 55-60.

c). Retired defense personnel with a minimum age of 50 years.

Note: HUFs and NRIs are not allowed to invest in this scheme.  

With NPS, the criteria are simple: Any person between the age of 18 – 65 years can open an NPS account.  

What should my investment amount be?

  •    The minimum amount required for an investment in SCSS is Rs.1000.
  •    The maximum amount should be the lower of the two:
  1. An individual can invest up to 15 lakhs
  2. An individual can invest the amount received as a retirement benefit.

If it’s a joint account with a spouse, then the maximum amount is 30 lakhs.

The investment amount of NPS varies between 500 to 1000, depending on the type of NPS (Tier 1 or Tier II) you belong to. And there is no upper limit to the amount you can invest in NPS. Read More on: Types of NPS options?

The investment should be done by cheque or cash?

The SCSS account can be opened by cash or cheque. In the case of cash, the amount is below Rs.1 lakh and by cheque, the amount is above Rs.1 lakh.

You can invest in NPS within minutes using the paperless process of MyWay Wealth. All you need is to key in information with the amount you can invest and MyWay Wealth shows you the top recommended funds.  

What is the tenure of my investment?

The tenure for SCSS is 5 years. However, an extension of another 3 years is permitted.

An extension of three years is possible only on completion of the 5-year tenure. In addition, the investor needs to submit the duly filled Form B, which is regarding the extension of the scheme.

Note: Only one extension is allowed. But after one year, extended accounts can be closed and there would be no penalties charged for it.

With  NPS, there is of fixed maturity tenure and one can contribute to the account till the age of 70.

When can I withdraw my money?

The ideal withdrawal of funds for SCSS is after the tenure of the investment. However, premature withdrawal can be done but is subjected to penalties.

The penalty varies based on the period of the investment.

  • If the withdrawal is after the first year and before the end of the second year, then 1.5 % of the amount deposited is deducted as penalty.
  • If the withdrawal is on or after the second year, then 1% of the deposited amount is deducted.

NPS allows withdrawal only after 3 years of subscription and the account holder can make withdrawals up to 25% of the contributions. NPS has two types of account Tier I and Tier II, wherein:

  • Tier II account works like a savings account and hence the account holder is free to do withdrawals anytime.
  • Tier I has not withdrawal option until the account holder turns 60 except for specific situations like critical illness, child’s marriage and construction/ purchase of a property.

What are the Interest rates on my account?

The above table provides the historic interest rates on SCSS. The government has decided to review these rates quarterly and the interest is paid on the last working day of April, July, October, and January.

With NPS, there are chances of making high returns as the scheme invests a certain amount in equities as well, so investors are capable of receiving interest rates as high as 12 – 14%, which is more than the interest rates provided by other savings schemes.

Can I have multiple accounts?

The answer is Yes for SCSS. One can have an individual account, Joint account with spouse and hold multiple accounts. Though the answer is No for NPS, the point is, there is no necessity to open multiple or a second account with NPS as it is portable across locations and sectors.

What are the tax implications?

As mentioned before, SCSS is a tax saving scheme.

  • The sum invested on or after April 1, 2007, is eligible for tax deductions up to 1.5 per annum under 80C of the Income Tax Act.
  • The interest earned is fully taxable.
  • Tax is Deducted at source if interest is more than 10,000 per annum.

For NPS:

  • With NPS you can save tax up to 1.5 lakhs every year under Section 80(CCD).
  • You receive an additional tax deduction of Rs. 50,000 p.a. under Section 80CCD(1B) to save Rs. 15,480 in taxes!
  • Starting 1st of April this year, NPS on withdrawal will be totally tax exempt (like PPF and EPF, but with better returns thanks to equity exposure).

How do I Open an Account?

One has to opt for a bank to open an SCSS account after which you would have to open a Savings bank account. You would require the following documents:

  •    Two passport size photographs
  •    Aadhar card. (Absence of which one must provide a copy of the acknowledged Aadhar card application)
  •    Address and identity proof such as PAN, Aadhar card, passport or declaration is Form 60 or 61.
  •    Fill the “account opening form” provided by the bank.

Note: Have your original identity proof for verification purpose.

For NPS:

  • You can visit a point of presence (PoP), fill the prescribed form and submit the KYC documents.
  • You can also do it online at enps.nsdl.com.
  • Or simple, do it easily on your phone with MyWay Wealth app and experience the paperless KYC process by just sitting at home.

Is Nomination facility available?

Yes, the facility is available for SCSS by submitting an application as part of Form C, accompanied by the passbook of the Branch, at the time of opening an SCSS account.

NPS also provides the facility of nomination.

But in which bank do I open the account?

The SCSS account can be opened at any head post office or general post office.

The banks which offer SCSS are Allahabad Bank, Andhra Bank, Bank of Maharashtra, Bank of Baroda, Bank of India, Corporation Bank, Canara Bank, Central Bank of India, Dena Bank, IDBI Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, State Bank of India, Syndicate Bank, UCO Bank, Union Bank of India and Vijaya Bank.

The only private bank to offer SCSS is ICICI Bank. List of Pension Fund Managers for NPS are:

  • Birla Sun Life Pension Scheme.
  • HDFC Pension Fund.
  • ICICI Prudential Pension Fund.
  • Kotak Pension Fund.
  • LIC Pension Fund.
  • Reliance Capital Pension Fund.
  • SBI Pension Fund.
  • UTI Retirement Solutions.

Also, like SCSS, NPS account can also be opened through several banks as mentioned above. But why do it yourself when an app can do it for you? MyWay Wealth- India’s first and only app provides the facility of NPS for its investors. All you need is a few minutes to complete the paperless KYC process and then follow the steps below, you are all set to begin your retirement journey with NPS on MyWay.

 To sum it all up, the very objective of these Government Initiatives is to protect senior citizens from risks, cover their needs by means of assured returns.

It’s clearly seen that NPS can provide all the features that the Senior Citizen Savings Scheme can provide. Also additionally, it has tax benefits, way higher returns than usual retirement options and you can get it done easily with MyWay Wealth.

Everyone deserves a peaceful retired life after working so hard. Let your investments work for you now.

Invest in NPS on MyWay Wealth and enjoy a tension free Retirement Life!!

Introducing National Pension System (NPS) on the MyWay Wealth app!

Now invest in NPS on the MyWay Wealth app and save more taxes!

Secure our future with MyWay app

Dear Customer,
We are glad to introduce a brand new product on the MyWay Wealth app – National Pension System. Now you can invest in NPS on the MyWay Wealth app without any paperwork in a completely digital manner!

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Frequently Asked Questions (FAQs) on National Pension System (NPS)

  1. What is NPS?

National Pension System (NPS) is an investment cum pension scheme initiated by the Government of India to provide old age security and pension of all citizen of India. The NPS was rolled out for all citizens of India on May 01, 2009. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA)

  1. Who can subscribe to NPS?

A citizen of India, whether resident or non – resident can join the NPS subject to the following conditions:

  • Subscriber should be between 18 – 65 years of age as on the date of submission of her application
  • Subscriber should comply with the prescribed Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form for NPS
  1. How does the Scheme work?

The scheme is based on a unique Permanent Retirement Account Number (PRAN), which is allotted to each Subscriber upon joining. Subscriber contributes towards NPS (directly or through the employer she is working with) during her working life. On retirement or exit from the scheme, the Corpus is made available to her with the mandate that some portion of the Corpus must be invested into Annuity to provide a monthly pension post retirement or exit from the scheme

  1. What are different types of NPS Account?

Under NPS, Subscriber gets the option to open two accounts. A Tier I account is mandatory to open in order to join NPS. Difference between Tier I and Tier II accounts are as mentioned below:

 Tier I NPS Account Tier II NPS Account

  • It is also known as Pension account. All investments for tax savings happens in this account only.
  • Withdrawal from this account restricted
  • Minimum annual contribution required for this account is Rs.1,000
  • It is known as investment account
  • Withdrawal from this account can be done at any point of time as per Subscriber’s need
  1. What are entry and exit age under NPS?
ParticularsMinimumMaximum
Entry Age18 years65 years
Exit Age fter 10 years of Account opening70 Years
  1. Can a Subscriber open more than one NPS account?

No. In the entire life span, Subscriber will be allowed to open only one NPS Account. The NPS Account number, which is also called PRAN, is fully portable across job and geography

  1. Is there any restriction on the frequency of contribution?

There is no restriction in terms of frequency of contribution. The subscriber has the option to make the contribution in any mode – monthly, quarterly, half-yearly or yearly. Subscriber can make ad – hoc contribution as well

  1. Can Subscriber increase or decrease the contribution amount in subsequent years?

Yes, NPS offers this flexibility. Subscribers are allowed to alter the contribution amount as per the suitability. However, this is restricted to the Subscriber’s own contribution. For Employer’s contribution, this flexibility depends on the Employer’s policy

  1. Does Subscriber get any alert on credit of contribution amount to his / her NPS accounts?

Yes, once the contribution is credited to Subscriber’s NPS account, an email alert as well as a SMS alert is sent to the registered email ID and mobile number of the Subscriber

  1. What happens if the minimum annual contribution of Rs.1000 is not invested in Tier – I NPS Account?

In case the Subscriber fails to contribute minimum Rs.1000 per annum in Tier – I NPS Account, the PRAN is frozen. Once the PRAN is frozen, Subscriber is not allowed to do any transaction (financial / non – financial) in both – Tier – I and Tier – II NPS Accounts

  1. What is the process of unfreezing the PRAN?

Subscriber needs to contribute minimum Rs.500 through portal to unfreeze the NPS Account

  1. How the funds going to be invested under Subscriber’s NPS account?

      NPS offers 4 funds to Subscribers

  • Equity (E)
  • Corporate Bonds (C)
  • Government Securities (G)
  • Alternate Investment Funds (A)

NPS restricts investment towards Equity and Alternate Investment Funds to 75% and 5 % of contribution amount respectively for both Tier I and Tier II NPS Accounts. However, Subscriber can invest up to 100% in Corporate Bonds or Government Securities Fund. Investment across three funds will be managed by HDFC Pension Management Company Limited

  1. How does the investment happen across three funds under Auto choice?

Investment across 3 funds will be done in a life cycle fund. Under this option, investment across Equity, Corporate Bonds and Government Securities is done as per the age of the Subscriber in below three life cycle funds:

  • LC- 75 Aggressive Life cycle Funds
  • LC- 50 Moderate Life cycle Funds
  • LC- 25 Conservative Life cycle Funds

Illustration of LC – 50 Moderate Life Cycle Funds is state as per below chart:

Age of the Subscriber Equity Corporate Bonds

Government Securities

  • < = 35 Yrs 50% 30% 20% 36 48% 29% 23% 37 46% 28% 26% 38 44% 27% 29% 39 42% 26% 32% 40 40% 25% 35% 41 38% 24% 38% 42 36% 23% 41% 43 34% 22% 44% 44 32% 21% 47% 45 30% 20% 50% 46 28% 19% 53% 47 26% 18% 56% 48 24% 17% 59% 49 22% 16% 62% 50 20% 15% 65% 51 18% 14% 68% 52 16% 13% 71% 53 14% 12% 74% 54 12% 11% 77%
  • > = 55 Yrs 10% 10% 80%
  1. How the above fund allocation chart works under Auto Choice Investment option?

The first allocation is made as per the age of the Subscriber at the time of joining the Scheme as shown in the chart. For example, if the entry age of Subscriber is 42 years, her allocation towards E, C and G would be 36%, 23%, and 41% respectively. On the next date of birth of the Subscriber, the portfolio will be re-aligned as per the next level chart i.e. for the age 43. The realignment of a portfolio is system driven

  1. What are the tax benefits available to Subscribers for contribution under the corporate model?

Under NPS corporate model, Subscriber gets the following tax benefits on contributions

Tax Benefit on investment Tax Treatment on exit

Tier I

  • • Investment up to 10% of Salary (Basic + Dearness Allowance) routed through the Employer, is deductible from taxable income u/s 80CCD (2) of Income Tax Act, 1961 which is over and above Rs. 1.5 lakhs limit of section 80C
  • Additionally, investment up to Rs.50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961
  • Amount withdrawn in lump sum is exempt from tax to the extent of 40%* of total Corpus
  • Amount invested in Annuity is fully exempt from tax
  • Balance amount if invested in to Annuity is exempt from tax. If the amount is withdrawn, it will be taxable in the hands of Subscriber
  • Pension received out of investment in Annuity is treated as income and will be taxed appropriately

Tier II

  •  No tax benefit Capital gain tax will be applicable

Note: *As per the recent announcement by Finance Ministry, the entire corpus withdrawal in lump sum i.e. 60% would be made Tax Free from the commencement of next F.Y (F.Y. 19-20)

15. What are the charges under NPS and how these charges are levied?

There are various intermediaries involved under NPS. The charge for these intermediaries is regulated by PFRDA. Below are the details of charges under NPS (exclusive of GST)

Intermediary Charge Head Charge# Mode Deduction of POP

Registration Charge Rs.200 To be collected up Contribution Processing Charge* 0.25%

front / deducted Non – Financial Transaction Processing Charge Rs.20

from contribution amount Persistency Charge# Rs.50 Account Opening Charge CRA (NSDL)

Transaction Processing Charge Annual Maintenance Charge Rs.40

Rs.3.75 Rs.95

Through cancellation of Units

Account Opening Charge CRA (Karvy)

Transaction Processing Charge Rs.39.36

Rs.3.36

at the end of the Calendar Quarter

Annual Maintenance Charge Rs.57.63 PFM Fund Management Charge Custodian Security Deposit Charge NPS Trust** Trust Management Charge 0.01% 0.0032%

0.005%

Through deduction NAV

*subject to minimum Rs.20 and maximum Rs.25000 per PRAN per Transaction

**GST is not applicable on Trust Management Charge

#Applicable on Retail active accounts after first financial year

  1. Does Subscriber need to pay POP charges over and above the contribution amount?

No, the POP charges would be deducted from the Contribution amount

  1. What is meant by Non – Financial Transaction?

Transactions like change of address, nominee details, Intersector shifting, etc are called non – financial transactions

  1. How is the Non – Financial Transaction Charge recovered by POP?

Subscriber needs to pay Service charge of Rs.20 + GST by Cheque at the time of submitting request for processing any non – Financial transaction

  1. Does Subscriber need to open a new NPS account if she is already having one?

No, Subscriber does not need to open a new NPS account. Subscriber will need to shift the existing account to Corporate NPS account by submitting Inter Sector Shifting (ISS – 1) form along with Service Charge of Rs. 20 + GST to POP representative along with self-attested copy of PRAN Card

  1. Can a Subscriber change / modify data in the NPS system after joining NPS?

Yes. Subscriber needs to submit the request along with the Service Charge of Rs. 20 plus GST as applicable to POP-SP representative for initiating the modification

  1. Can a Subscriber request for a duplicate PRAN Card?

Yes. In case of loss or damage of PRAN Card, the Subscriber needs to submit a duly filled S2 form to the POP for issuance of duplicate PRAN Card. Rs.40 plus applicable GST will be deducted by CRA for issuing duplicate PRAN

  1. Does Subscriber get any physical statement for NPS account?

Yes, an annual statement containing details of the unit holdings is issued by CRA to Subscriber’s registered address within 3 months of the end of every financial year

  1. Is partial withdrawal allowed from Tier I NPS Account?

Yes. Subscriber can withdraw up to 25% of contributed amount towards Tier – I NPS Account after 3 years of NPS account opening. Additionally, Subscriber is allowed to withdraw from Tier I NPS account twice in the entire tenure of NPS account hold

  1. What are the conditions of partial withdrawal?

Withdrawal from Tier – I NPS account would be permitted for specific purposes like Child’s marriage, higher education, buying home, treatment of critical illnesses etc.

  1. When can a Subscriber exit from NPS?

Subscriber can exit from NPS after 10 years or attainment of superannuation age (retirement age) defined by the corporate whichever is earlier

  1. How the payout happens if a Subscriber exists from NPS?

Primary objective of Tier – I NPS Account is to create a Corpus, which can be used at the time of retirement to buy pension for the Subscriber / Nominee. Hence, there is a restriction imposed on lump sum amount accessible to Subscriber on exit as mentioned below:

Exit before Superannuation age defined by the Corporate

Exit at Retirement age defined by the Corporate

  • Up to 20% of Corpus can be withdrawn in lump sum
  • Balance amount needs to be invested in Annuity
  • If the Corpus is less than or equal to Rs.1 lakh, there is no need to invest into Annuity. Entire amount can be withdrawn in lump sum
  • Up to 60% of Corpus can be withdrawn in lump sum
  • Balance amount needs to be invested in Annuity
  • If the Corpus is less than or equal to Rs.2 lakhs, there is no need to invest into Annuity. Entire amount can be withdrawn in lump sum
  1. Is it mandatory to withdraw the amount immediately at the time of exit from NPS?

In case of exit from NPS on retirement age defined by the Corporate, Subscriber can defer the withdrawal option till 10 years depending on the market condition. Subscriber can withdraw this amount either in lump sum or take the same in a phased manner with maximum 10 installments before attaining the age of 70 years.

However, in case of pre – mature exit from NPS (before attaining the age of 60 years), Subscriber does not have the deferment option

  1. What happens to the funds if Subscriber opts to defer the withdrawal (after the

retirement age defined by the Corporate)

The fund would continue to remain invested. The Pension Fund Manager, Scheme Preference and Asset Allocation Pattern will remain the same as they were at the time of vesting

  1. In case the Subscriber opted for withdrawal from Tier – I NPS Account before the age60, at what age annuity will start?

In case of pre-mature withdrawal, Subscriber needs to invest in Annuity immediately. Depending on the Annuity Plan he / she has invested in, annuity would start

A gift for retirement – National Pension Scheme

The average life expectancy has increased to 70 years, so a quick question went through my mind what if I have been gifted such a long life, shouldn’t I plan for a healthy and happy retirement? Shouldn’t I be prepared for the future?
I am pretty sure that this question might have crossed through your mind too. The answer for the same is National Pension Scheme.

What is NPS?

National Pension Scheme is a defined contribution-based Pension Scheme launched by Government of India. NPS is regulated by Pension Fund Regulatory Authority of India (PFRDA). It is a voluntary scheme for old age security.

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