How NPS balance will effect on your pension

Dear Subscribers we already discussed how your NPS balance can be lower. In this topic we will discuss about how your contribution will impact on NPS balance, annuity and pension of the subscriber

In such any case NPS is not good for pensionar Subscribers at all.

As we know that NPS is defined contribution pension system . It is compulsory for all government servants NPS contribution has been deducted from Subscribers salary.

The savings of individuals are pooled in a pension fund, which gets invested by PFRDA regulated professional fund managers according to the stated investment guidelines.

Over the years, these contributions would accumulate and grow depending upon the returns generated on the investments.

During the time of exit from NPS scheme, the subscribers have an option to use the fund either to purchase a life annuity from PFRDA impaneled life insurance company or to withdraw a part of the accumulated fund as a lump sum.

That contribution is invested in three assets however NPS gives no Guarantee and the time of exit and the accumulated wealth depends on whatever you have contributed and how much income in generated from it over the period of time. The greater the Principal invested, the longer the time horizon, the probability of high returns increases.

NPS tax-free withdrawal will be hiked from 40% of the subscriber’s corpus to 60%. Since the balance 40% used for annuity purchase is also tax free, the NPS in effect becomes a 100% tax free instrument. However note that the annuity (monthly pension) you purchase from the balance 40% NPS corpus is taxable. This reform is applicable to both government and private subscribers.

Tax deduction under Section 80C will be extended to Tier II of NPS with a lock-in for 3 years for government employees. Currently it is only available under NPS Tier I and the lock-in is till the age of 60. However this reform does not extend to private sector subscribers who will only get a tax-break in Tier I.

Central Government employees will get to choose 1 of 4 NPS plans. They will be 0% equity, 15% equity (current default plan), 25% equity and 50% equity. At present equity is capped at 15% for Central Government employees.

Central Government employees will be able to select from amongst the 8 pension fund managers in the NPS. Currently their money is split equally between the 3 public sector fund managers.
Government contribution for the Central Government NPS subscribers will be hiked from 10% to 14%. However employee contribution will remain the same (at 10%).

If the employee chooses to convert his entire NPS corpus into an annuity (monthly pension), he will be guaranteed a minimum pension equal to 50% of last drawn salary.

State Governments have to adopt these reforms for them to apply to State Government NPS systems. Currently all of the states in India have adopted NPS, except West Bengal.

Most important thing which i want to tell you is that if your NPS balance is lower than your colleagues your maturity will also be lower than your colleagues and it is too lower because NAV will be calculated cumulatively therefore your maturity will be calculated lower than your colleagues. 

If your maturity amount is small then your annuity will small amount. 

If your annuity is small amount which will be invested in life insurance company then your pension will be lower. Your annuity gives you small amount of pension , that such thing i wish to tell you.I hope it will be helpful to you all.

By the way if your NPS balance is lower or if you like this post then comment me in comment section.