The door of the National Pension Scheme or NPS, once started for government employees, has been opened for everyone today. Now employees working in the private sector can also open an account in this. Recently there has been some amendment in the rules, which has made it easier for senior citizens to open an account in it.

As per the new rules of NPS, the entry age has been revised to 18 to 70 years. Earlier it was from 18 to 65 years. This means that you can join NPS even at the age of 70. But how much will it help you as a senior citizen? Come, let’s understand it.

What is NPS?

National Pension Scheme or NPS is a long term retirement investment scheme, which is voluntary in nature and provides social security cover in the form of monthly pension to the employees after their retirement. The minimum age a person can open an account in NPS is 18 years of age, and he/she has to keep contributing till retirement to get monthly pension. After retirement, the account holder can withdraw up to 60% of the total amount which is completely tax-free. However, the balance 40% amount will have to be compulsorily purchased from PFRDA-registered insurance firms in order to receive monthly pension after retirement.

What are the recently revised guidelines of NPS?

Before the new rules, any Indian citizen in the age group of 18-65 years (both resident and non-resident) could join the NPS. The entry age has been increased by the amended rules. Here you can know about some of the recent important changes in NPS.

What is the entry age now?

PFRDA in its revised guidelines has increased the entry age to 70 years from 65 years earlier. Thus, as per the amendment, the existing entry age of 18-65 years has been revised to 18-70 years. Subscribers who have closed their NPS accounts can now open new NPS accounts as per the enhanced age eligibility criteria.

Is there any cap on equity exposure?

Funds in NPS are also allowed to invest in equity assets, but up to a limit. Two options are given to the subscriber(s) – Auto Choice and Active Choice. By default opting for Auto Choice, the allocation limit in Equity is 15% whereas in Active Choice, allocation can be decided on a cap basis – which is usually 50% to 75%. It is capped at 50% for government employees. As per PFRDA, subscribers joining NPS after the age of 65 years can opt for Pension Fund (PF) and asset allocation under Auto and Active Choice with a maximum equity exposure of 15% and 50% respectively. PF can be changed once in a year while asset allocation can be changed twice.

What is the arrangement for exit for such subscriber?

The normal exit for such subscriber will be after three years of account opening. However, the rules suggest that an account holder joining NPS after the age of 65 has to utilize at least 40% of the corpus or buy his annuity. The balance amount can be withdrawn in a lump sum. However, if the corpus is Rs 5 lakh or less, the account holder can choose to withdraw the entire accumulated pension fund.

What happens on withdrawal before three years?

If a subscriber makes a premature exit before three years, the subscriber will have to use at least 80% of the corpus in the annuity. The remaining amount can be withdrawn in a lump sum. However, if the corpus is Rs 2.5 lakh or less, the account holder will be eligible to withdraw the entire accumulated pension fund.

What is Annuity in NPS?

Simply put, an annuity is an insurance contract that provides a lifelong fixed income to an individual. Under NPS, a certain amount is required to purchase an annuity plan from PFRDA-registered insurance firms for pension. An annuity works by converting a lump sum amount into a fixed stream of income. It is mandatory to buy an annuity from 40% corpus at the time of retirement to get monthly pension.

Should senior citizens invest in NPS after revision of guidelines?

The NPS guidelines have been amended to make this pension investment instrument more attractive to existing subscribers and senior citizens who have attained retirement. This gives them an option to invest in equities for a long period of time and get better returns than traditional instruments like fixed deposits. It is said that senior citizens should invest in such instruments which provide them easy liquidity along with assured returns.

NPS comes with lock-in during and after the investment tenure, as well as when you compulsorily invest in the annuity. So for senior citizens, liquidity could be an issue due to the lock-in conditions. Secondly, unlike many other instruments meant for senior citizens such as SCSS or PMVVY which provide guaranteed returns, the returns in NPS are not guaranteed.

Third, investing in NPS by senior citizens may not be as profitable as compared to a younger investor who gets a longer investment tenure to get better returns on his money. Considering the age of the senior citizen, they will have very less time to stay invested to get good returns. Along with this, their returns can also suffer due to market volatility during the short investment period. Further, the provision of compulsorily buying an annuity deprives senior citizens of having a right over their entire corpus, which may not be the case with other instruments.