Choosing the right pension plan is vital for a secure retirement, whether you are a resident of India or an NRI. With various options available, from private pension plans to government-backed schemes like NPS, OPS, and UPS, it’s crucial to evaluate each plan’s benefits and align them with your long-term financial goals
Planning for a secure financial future is crucial, especially when approaching retirement. A well-chosen pension plan can provide stability and peace of mind, ensuring a steady income after retiring. In India, several pension schemes are available, both private and government-sponsored, offering various benefits. Non-Resident Indians (NRIs) also have opportunities to invest in these pension funds.
Private Pension Options for NRIs
Several private companies, such as Bajaj Allianz, Kotak Life, ABSLI, and Tata AIA, offer pension schemes that cater to the needs of NRIs. Additionally, the Life Insurance Corporation of India provides programs tailored for NRIs, allowing them to plan their retirement effectively.
Government-Sponsored Pension Plans
Three major government-backed pension schemes are available in India: the National Pension Scheme (NPS), the Old Pension Scheme (OPS), and the newly launched Unified Pension Scheme (UPS).
- National Pension Scheme (NPS)
Launched in 2004, the National Pension Scheme was initially designed for government employees but was opened to all citizens, including NRIs, in 2009. The NPS allows individuals to contribute to a pension account during their working years and withdraw a portion of the corpus at retirement, with the remainder used to purchase an annuity for regular income.
Key Features of NPS:
- Voluntary Participation: Managed by the Pension Fund Regulatory and Development Authority (PFRDA), NPS is considered a secure investment choice.
- Eligibility: Open to all citizens, except armed forces personnel, who joined the central government after January 1, 2004. It is also available to private-sector employees and NRIs.
- Contribution Structure: Central government employees contribute 10% of their basic salary, while the government contributes 14%. Other participants can contribute a minimum of Rs 500 monthly.
- Market-Linked Returns: The pension amount is not fixed and depends on market performance.
- Withdrawal Benefits: At retirement, 60% of the corpus can be withdrawn tax-free. Additionally, partial withdrawals are allowed after ten years.
- Choice of Fund Manager: Participants can choose a professional fund manager to handle their investments.
- Tax Advantages: Contributions to NPS offer tax benefits, making it an attractive option for those seeking long-term savings.
For NRIs, the NPS provides several benefits, including low costs, high returns due to market-linked performance, tax advantages, and flexibility in choosing fund managers and investment options. NRIs can open both Tier 1 and Tier 2 NPS accounts, provided they have a PAN card and are between 18 and 60 years old.
- Old Pension Scheme (OPS)
The Old Pension Scheme offers a defined benefit for government employees with at least ten years of service, calculating the pension based on the last drawn salary and years of service. Some states, such as Himachal Pradesh, Rajasthan, Chhattisgarh, and Punjab, have reverted to OPS due to its guaranteed benefits. However, OPS lacks a growing corpus, increasing the financial burden on the government.
- Unified Pension Scheme (UPS)
Introduced in August 2024, the Unified Pension Scheme (UPS) combines elements of both NPS and OPS to provide a more balanced approach. Effective from April 1, 2025, it guarantees a pension of 50% of the basic salary for central government employees who joined after January 1, 2004. This scheme is expected to benefit around 2.3 million employees, offering them a choice to switch from NPS to UPS.
***********************************************************
Readers
These are extraordinary times. All of us have to rely on high-impact, trustworthy journalism. And this is especially true of the Indian Diaspora. Members of the Indian community overseas cannot be fed with inaccurate news.
Pravasi Samwad is a venture that has no shareholders. It is the result of an impassioned initiative of a handful of Indian journalists spread around the world. We have taken a small step forward with the pledge to provide news with accuracy, free from political and commercial influence. Our aim is to keep you, our readers, informed about developments at ‘home’ and across the world that affect you.
Please help us to keep our journalism independent and free.
In these difficult times, running a news website requires finances. While every contribution, big or small, will make a difference, we request our readers to put us in touch with advertisers worldwide. It will be a great help.
For more information: pravasisamwad00@gmail.com