5-Step Cycle for Opening an NPS Account
Financial planning is important at every stage of life and this becomes particularly vital after you retire. Pension plans must be included in your retirement planning, as these plans provide financial security during your golden years after you do not have a regular income source.
According to data, the current life expectancy of 65 years is poised to increase to 75 years by 2050. This increase in post-retirement years accentuates the importance of retirement planning. Pension plans can help ensure a secure financial future in which you do not have to depend on others for your needs.
Keeping this mind, the government launched the national pension system (NPS) on 1st January 2004. It aimed to reform pension-related norms and increase savings among individuals. Although, the scheme was initially available only for government employees, it became available to all citizens in 2009.
Permanent Retirement Account Number (PRAN)
Every subscriber to the national pension system is provided with a PRAN. This is a unique identification that gives account holders portability, allowing them to move their accounts anywhere across the country. The two types of personal accounts include:
1. Tier I account — This is a non-withdrawal account, where annual investments of at least INR 6,000 must be made until the age of 60 years.
2. Tier II account — This is a simple voluntary facility in which the subscriber can make a withdrawal as per his or her requirements. However, this account is not available as a tax saving scheme.
Opening an NPS Account
- Central government employees — All employees, with the exception of armed forces personnel, must subscribe to a tier I account under the national pension system. Account opening procedure is as follows:
- Submit the form (S1) to the Drawing and Disbursing Officer (DDO) or any equivalent office
- DDO provides and certifies employee details
- Form is forwarded to the respective pay and accounts office (PAO) or district treasury officer (DTO)
- The form must also be submitted to the Central Record-keeping Agency (CRA) for registration
- Start your NPS contribution through the nodal office
- State government employees — State government and autonomous bodies’ employees, joining services after the notification date, must invest in the NPS through a Point of Presence — Service Provider (PoP-SP).
- Submit the form (S1) to the DDO or equivalent office
- DDO will provide and certify employee information
- The form is then forwarded to the PAO or DTO
- CRA registration through form submission
- Monthly investments commence through the nodal office
- Individuals — Any citizen, as well as non-resident Indians (NRI), aged between 18 and 60 years can subscribe to this tax saving scheme.
- Submit form (CSRF 1) to PoP-SP along with know-your-customer (KYC) documents
- Tier I subscribers can also subscribe to Tier II account (Annexure I to the CSRF 1)) through submission to the associated POP-SP
- POP-SP validates the form and provides receipts to subscribers
- The investment can be made at the POP-SP through the NPS contribution instruction slip
- Corporate–Corporate investments can be made at subscriber level or centrally for underlying subscribers. The company or subscribers can choose from the registered pension fund managers (PFM) to invest and also determine the allocation percent among the different asset classes.
Now that you know how to open an NPS account you should gather more information on the system and figure out what is the optimal investment amount for your needs. NPS calculators, can help give you a better idea of the tax benefits and savings from your investment.