It is important for a country to have a well-defined pension arrangement enhancing strong social structure. Pension and retirement benefits provide sense of security to an individual and also acts as a source of investment. The New Pension Scheme is a contribution based pension scheme in which any individual can contribute towards their retirement fund. Earlier pension systems in the country used to be provided only by employers i.e. private and public employers. But new pension scheme introduced by the government is a flexible mode of retirement scheme in which any individual in the country can start investing towards retirement fund. This is easily the best investment scheme in the country to maintain standard of life after retirement.
New Pension Scheme is an effort of the government to reduce its pension liability and also helping general public to decide where to invest their money. It is a two tier contribution based investment structure in which an individual has full authority to decide where to invest his money. As already told it is a two tier structure consisting of tier I and tier II. The working of whole pension system is very simple. Tier I of the pension structure does not allow you premature withdrawal while tier II of the structure can be used for any withdrawal before maturity. The minimum contribution for any individual is RS 500 per month or RS 6000 annually. Below are some of the advantages offered by New Pension Scheme to an individual:
- Cost effective: The cost of investing in new pension scheme is almost negligible whereas the cost of investing in alternate funds like mutual funds is very high. You incur entry and exit loads upon investment in mutual fund schemes. The fund management cost is very low, which will enhance the returns.
- Freedom to entry: New pension scheme allows anyone from the age of 18 till 55 years to enter and invest into this pension scheme. Earlier in the old pension schemes, only central government employees had the option to invest in pension scheme but new pension scheme provide this facility to anyone contributing to prosperity of people of India.
- Investment opportunities: The new pension scheme has a unique feature that provides every opportunity to an individual to invest in variety of funds and yielding maximum returns from their investments. Returns from investments in turn help an individual to reach and attain their investment objectives and future goals. An individual can also rebalance their accumulated fund free of cost and can be invested in any fund.
- Tax implications: There is no tax implication for an individual if they chose to invest in new pension scheme. An individual is provided tax benefit over and above RS 1 lakh under section 80C of income tax laws.
- Security to the nominee: In case of death of the contributor, the nominee to the beneficiary receives the accumulated amount in lump sum. So, it provides sense of security to the nominee as well.