By Anil Chopra
The superior news is that now senior citizens above age 65 (up to 70 years)are also permitted to open a National Pension System (NPS) account. Earlier, Pension Fund Regulatory and Development Authority (PFRDA) had improved the maximum age of joining below NPS from 60 years to 65 years of age. Now, any Indian Citizen, resident or non-resident and Overseas Citizen of India (OCI) involving the age of 65-70 years can also join NPS and continue or defer their NPS Account up to the age of 75 years.
Going forward, everyone involving the age of 18 and 70 years may perhaps open a NPS account. Those Subscribers who have earlier closed their NPS Accounts are permitted to open a new NPS Account as per improved age eligibility norms.
The new guidelines with regards to the entry age stand to advantage the senior citizens particularly these who wanted to open the account and save for their post retirement requires. By investing in NPS, they can now program for a standard pension till their lifetime. The quantity invested in NPS also comes with tax advantages and aids the senior citizens save tax. On opening an NPS account, a Tier I account gets opened automatically, when the Tier II account can be opened to maintain savings liquid as it comes with no lock-in period.
Even for the duration of retirement, one requires to allocate funds into equities maintaining life expectancy and inflation into consideration. NPS provides you the selection to allocate funds involving equity & debt alternatives like Govt securities & Corporate Bonds to handle inflation for the duration of retirement. Those joining NPS beyond the age of 65 years, can physical exercise the selection of PF ( Pension Fund) and Asset Allocation with the maximum equity exposure of 15% and 50% below Auto and Active Choice respectively.
The exit circumstances for subscribers joining NPS beyond the age of 65 years will be as below:
a. Normal Exit will be just after 3 years : If somebody joins NPS just after age 65, the minimum lock-in period will be 3 years. However, withdrawing the whole corpus is not permitted and only up to 60 per cent tax totally free withdrawal can be made by the subscriber. On balance 40 per cent, compulsory pension or annuity will be paid by a life insurance coverage corporation. If the corpus is equal to or significantly less than Rs 5 lakh, the Subscriber may perhaps opt to withdraw the whole accumulated pension wealth in lump sum. In that case , 60% of the withdrawal quantity will be regarded Tax totally free and balance 40% will be added in taxable revenue of the subscriber.
b. Exit ahead of completion of 3 years will be treated as Premature Exit : In case if somebody joining NPS just after age 65 desires to withdraw ahead of competitors of 3 years, up to 20 per cent tax totally free withdrawal will only be permitted. On balance compulsory lifetime pension or annuity. If the corpus is equal to or significantly less than Rs 2.5 lakh, the subscriber may perhaps opt to withdraw the whole accumulated pension wealth in lump sum. Here , once again 60% quantity will be tax totally free and balance taxable.
There are tax-advantages for the NPS subscribers as nicely. The contribution made in NPS not only qualifies for deduction below Section 80 CCD (1) up to a limit of Rs 1.5 lakh per monetary year but also it comes with added tax advantage below section 80CCD(1B) up to Rs 50,000 a monetary year. For these joining NPS just after the age of 65, the benefit is in terms of superior annuity prices as compared to younger people. The annuity prices for somebody age 65 is superior than annuity prices for somebody age 55. For these searching to join NPS just after age 65, the objective ought to not be to save only tax but to make a corpus to supplement pension for the duration of the retired years.
(The author is Group Director – Financial Wellbeing, Bajaj Capital)