Improved data security to withdrawal flexibility: NPS changes you must know

Establishing a retirement portfolio is important for salaried individuals to ensure ensuring financial security. The National Pension System (NPS) is a government-sponsored and market-linked scheme that enables people to earn returns from their investments over the long term. By investing in NPS, one can create a retirement corpus while saving on Income Tax.  

The Pension Fund Regulatory and Development Authority (PFRDA) says that the eventual benefit of accumulated pension wealth is influenced by factors such as contribution value, investment achievements, accumulation duration, and deducted charges.

Subscribers can claim an exemption of up to Rs 1,50,000 lakh with NPS under Section 80C, Section 80CCC, and Section 80CCD (1) of the Income Tax Act, 1961. They can also avail of an additional benefit of Rs 50,000 under Section 80CCD(1b). Account holders become eligible for early or partial withdrawal after 10 years of opening an NPS account. However, you must invest at least 80 per cent of the corpus in an annuity which will yield lifelong pension.

Here are major changes in NPS over the years:

Two-factor authentication for NPS login: Starting April 1, 2024, the PFRDA has introduced a mandatory two-factor Aadhaar-based authentication system for all password-based logins to the NPS Central Recordkeeping Agency (CRA) system. This added security measure is aimed at safeguarding the interests of NPS subscribers.

Equity allocation limit at 75 per cent: NPS provides two investment options: 'Active' and 'Auto'. Under the 'Active' option, subscribers can choose asset classes like equity, debt, and alternative investment funds, with a maximum equity investment limit of 75 per cent. Previously, if someone opted for a 75 per cent equity investment, it would decrease by 2.5 per cent annually after turning 50, reaching 50 per cent by that age to reduce risks as retirement approached. However, this gradual reduction in equity exposure is now optional, allowing individuals to maintain a 75 per cent equity allocation until the age of 60. There is no change in the auto option.

Equity allocation in tier-2 NPS account: The government has increased the equity allocation limit for subscribers of the tier-2 NPS account from 75 per cent to 100 per cent. This change allows investors to have a higher exposure to equities within their tier-2 NPS account, potentially offering greater growth opportunities.

Increased Withdrawal Flexibility: Starting February 2024, NPS subscribers are allowed to make partial withdrawals for a wider range of purposes, including children's higher education, purchase or construction of a residential house, and treatment of specified illnesses. This added flexibility can help meet unexpected financial needs during the accumulation phase.

Allotment of units at the same day Net Asset Value (NAV): The introduction of the Direct Remittance (D-Remit) facility enables NPS subscribers to access the same-day NAV for their investments. By registering for a virtual account number linked to their bank account, investors can benefit from immediate NAV on their contributions through the D-Remit process. This feature provides significant advantages for NPS investors. Contributions made to the Trustee Bank (TB) before 9.30 am are promptly invested on the same day, enhancing investment returns. Moreover, subscribers have the flexibility to establish periodic auto-debit payments, such as monthly, quarterly, or half-yearly, facilitating the seamless growth of their retirement savings.