NPS Scheme After 60 Years: Growth, Challenges, Risks, Impact & Retirement Solutions

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NPS After 60 Years: A Comprehensive Analysis of Growth and Impact

NPS stands for National Pension Scheme, regulated by the Central Government and Pension Fund Regulatory and Development Authority (PFRDA). The scheme's primary objective is to provide pension benefits to salaried employees in both public and private sectors. Once the subscriber reaches retirement age, they can withdraw a lump sum from their accumulated corpus and invest some amount in an annuity to receive a monthly pension. It is an important scheme for retired individuals who expect a regular income after retirement. In the following sections, you will get a comprehensive analysis of the growth and impact of NPS after 60 years.

Performance Analysis After 60 Years

According to the latest PFRDA data in December 2023, equity investments have delivered around 17% returns in the past year. The annual average returns are more than double the 7% compared to corporate bonds, 7.10% in government securities, and 8.2% in state and central government schemes. The benchmark returns are 16.39%, while pension fund managers have delivered them in the 15% to 16% range.

As the NPS data suggests, returns of corporate debt range from 6 to 8%, based on the fund manager. The past one-year returns hover from 6 to 7% for government securities. The NPS was introduced for individual subscribers in 2004 and initially targeted government employees. It became available to all Indian citizens in 2009. However, it was only in 2008 that the option for voluntary contributions to the NPS was introduced, allowing individuals to contribute above the mandatory contributions from their salaries. So, you can now choose fund managers for gilts, equity, and corporate debt.

Withdrawal Options and Tax Implications After 60 Years

Upon retirement, you can withdraw 60% of the accumulated wealth in a lump sum (Tax free) and invest the remaining 40% in annuity. The NPS scheme fund managers invest the amount in four annuity options: equity, corporate debt, government bonds, and alternative securities. Based on the asset’s performance, you receive a decent pension post-retirement to create a regular income source.

At maturity, if your investment corpus is more than Rs. 5 Lakh, you can only withdraw 60% of the corpus amount as a lump sum. This withdrawal is tax-free under Section 10 (12A). Tier I NPS account investment provides tax benefits of up to Rs. 2 Lakh under Section 80C and Section 80CCD. However, the income from the remaining 40% of the annuity is taxable. It affects your overall retirement income by increasing your tax savings and providing a regular pension post-retirement.

Suitability for Retired Individuals

Since senior citizens have no or limited sources of income, they have a very low risk tolerance for their funds. Consequently, they seek the safest investment options with minimal risk and high returns. They can withdraw 60% of the invested corpus at retirement without risk. The remaining 40% they invest in an annuity also provides them a monthly pension after retirement.

Liquidity is another important factor to consider when choosing an investment avenue. Since they have limited income sources and largely depend on savings to cover various planned or unplanned expenses, their investment should be highly liquid to give them funding access when needed. NPS offers multiple withdrawal options with tax benefits to enhance suitability for retired individuals. Moreover, integrate the scheme with other retirement income schemes to gain financial independence post-retirement.

NPS Challenges and Risks After 60 Years

Here is a look at some risks involved with NPS after 60 years:

Liquidity Risk: The NPS scheme has limitations during the investment horizon and after retirement. Firstly, the investors can only withdraw 60% of their corpus at retirement and must purchase an annuity with the remaining 40%. Such limitations may not be convenient for people who need a lump sum at retirement.
Returns Not Guaranteed: NPS is a market-lined investment scheme with contributions in assets like equities, corporate bonds, government bonds, and alternative securities. Since the investors must use 40% of their corpus to purchase an annuity, they do not guarantee returns and are taxable. On the contrary, other schemes like NSC have a clear rate of return, giving transparency after 60 years.
Short Investment Horizon: NPS can perform better only with longer-duration investments, as equities take time to deliver the desired returns. After retirement, senior citizens have shorter investment terms that may not offer the best returns. Moreover, corporate debt and government bonds deliver lower returns than other assets.
Taxable Pension: Annuity received as a pension is taxable for senior citizens according to their tax slab.

Conclusion

It is essential to note that apart from providing a lump sum at retirement and pension after 60 years, NPS also offers tax benefits from the investment. However, instead of withdrawing 100% of the accumulated corpus, you can only withdraw 60% of the wealth and invest 40% in annuity. It inculcates the habit of saving for retirement and gives a confident lifestyle after 60 years. Log on to https://www.kotak.com/en/personal-banking/investments/national-pension-system.html for more information on the NPS scheme after 60 years.

Frequently Asked Questions

Q: Can we get the full amount of NPS after 60 years?

According to the PFRDA rules, you can withdraw only 60% of the investment corpus at retirement. The remaining 40% must go into an annuity, which helps receive a monthly pension with the NPS scheme after 60 years. However, if the accumulated corpus is less than Rs. 5 Lakh, they can claim 100% withdrawal at 60 years.

Q: How can I extend my NPS account after 60 years?

To extend your NPS scheme after 60 years, you can submit a continuation request online by logging in to your NPS account through the NSDL website. Click ‘Exit from NPS’, select ‘Request for Deferment’, enter the necessary details, and submit a ‘Continuation’ request. You can continue the NPS scheme for up to 75 years of age.

Q: Can a 59-year-old invest in NPS?

Indian citizens in the age group of 18 to 70 years can invest in NPS. That means a 59-year-old can conveniently start investing in the scheme. However, their returns will be limited due to a shorter investment horizon.

Q: What happens if an NPS pensioner dies after 60 years?

After the subscriber’s death after 60 years, the nominee or legal heir will receive 100% of the accumulated wealth without any pension or annuity purchase.