The Central Government expanded the National Pension System (NPS) to include corporate employees, including PSUs, in December 2011. With effect from 01 January 2004, the scheme was available only for Central Government Employees (except for armed forces). Experts say the Corporate NPS model can help private sector salaried employees to accumulate a good corpus for post-retirement pension. The scheme is seen as a great option for salaried employees, working in eligible corporates, to plan their retirement.
In this article, let’s take a look at the key points of NPS for private sector employees.
1. Contribution process: The corporate NPS model allows employees to plan for their retirement by making contributions to the scheme during their working years. Employers can also choose to contribute to their employees’ retirement funds. According to Ajit Kumar, Chief Strategy Officer at KFintech, there are three variations of contributions from the employer and employee under the Corporate model:
- Equal contributions by both
- Unequal contribution by the employer and the employee
- Contribution from either the employer or the employee
2. Minimum contribution: As per the NPS rules, the total minimum contribution of Rs 1000 is required in a year for the NPS Tier-I account to remain active. You can make multiple contributions to the NPS account every year. However, the minimum amount that can be deposited per contribution is Rs 500. So if you are making a monthly contribution to the NPS Tier-I account, you will end up depositing at least Rs 6000 (Rs 500×12) in a year.
It is not mandatory to make monthly contributions to NPS. A subscriber needs to make a minimum of one contribution per year to the Tier I account. The minimum contribution required for the NPS Tier II account at the time of activation is Rs 1000 and Rs 250 as subsequent contributions.
3. Maximum contribution limit: Experts say that apart from any regular contributions by the employee or the employer, subscribers can also make voluntary contributions at any time they choose. There are no maximum limits to the amount that can be invested in NPS.
4. Tax benefit: NPS investment comes with certain tax benefits as well. “If you are a salaried employee and your cost-to-company structure allows your employer to contribute to your NPS, you may be eligible for a deduction of up to 10% of your salary (basic plus dearness allowance). This deduction can be increased to 14 per cent in the case of the government sector. Your own contributions will continue to be deductible under sections 80CCD (1) and 80CCD (2), (1B),” says Kumar.
5. Investment options: As per the rules of the scheme, corporates can choose the investment options for their scheme themselves or leave them up to the individual employee. “If the corporate chooses the investment option, it is applied to all employees. If the corporate lets employees select their investment options, they can choose between Active or Auto choice management, according to their preferences,” says Kumar. Employees can change their investment options if they leave the organization at any point in time.
How to register
Corporates who want to register for the NPS will have to do so through a PoP, who will also help facilitate the registration of employees. The PoP can be changed later by the employer upon their preference. These PoPs can help subscribers open both Tier I and Tier II NPS accounts.
What happens to existing NPS account after job change
Existing NPS subscribers, who have started working at an eligible corporate, can also migrate their existing NPS accounts to the corporate model by simply filling in a few forms and submitting them to the PoP.
(The headline and a paragraph of the article have been rephrased to give the correct meaning. The article was first published on August 23, 2022).