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ImageNational Pension System (NPS)

Introduction

National Pension System (NPS) which is administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA). It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India including organised as well as unorganised sector. Union Bank of India has been authorized to collect funds under the scheme from subscribers. All branches (which are called POP-SP) will work under one branch (which is called Point of Presence).

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Tax benefit to Subscriber:

  • The amount contributed is entitled for deduction from gross total income upto Rs. 1.50 lakh (along with prescribed investments) as per the section 80C.
  • An additional deduction for the investment up to Rs. 50000 in NPS tier 1 account has been introduced under sub section 80 CCD (1B) for the year 2016-17. This is over the deductions of Rs. 1.5 lakh available under sec 80CCE.
  • Tax benefits would be applicable as per the Income Tax Act, 1961 as amended from time to time.
Eligibility :
  • A citizen of India, whether resident or non-resident and Overseas citizenship of India.
  • Between 18 – 65 years of age as on the date of submission of his/her application to the POP/ POP-SP are eligible to open the account under the scheme subject to the following conditions:
  • The subscribers joining the NPS after the age of 60 would be eligible to continue in system up to age of 70 years and during this period the subscriber may continue to contribute.
  • The subscribers joining NPS beyond 60 years will have the same choice of the Pension Fund as well as the investment choice as is available under the NPS for subscribers joining before 60 years.
Type of Accounts :

Two types of accounts can be opened under NPS. They are:

Tier-I account
  • The applicant shall contribute his/her savings for retirement into this non-withdrawal account. This is the retirement account and applicant can claim tax benefits against the contributions made subject to the Income Tax rules in force.
Tier-II account
  • This is a voluntary savings facility. The applicant will be free to withdraw his/her savings from this account whenever he/she wishes. This is a not a retirement account and applicant can’t claim any tax benefits against contributions to this account.
Minimum Annual Contribution Requirements under NPS:
S. No.   Tier I Tier II
1 Minimum Contribution at the time of account opening Rs. 500 Rs. 1000
2 Minimum amount per contribution Rs. 500 Rs. 250
3 Minimum total contribution in the year Rs. 1000 Nil
4 Minimum frequency of contributions 1 per year Nil
Fund Management Schemes:
The NPS offers two approaches to invest subscriber’s money:
  • Active choice –Here the individual would decide on the asset classes in which the contributed funds are to be invested and their percentages (Asset Class E- Equity Maximum of 50%), Asset Class C- Corporate Debt securities and Asset Class G – Government Securities).
  • Auto choice - Lifecycle Fund, this is the default option under NPS and wherein the management of investment of funds is done automatically based on the age profile of the subscriber.
  • Choice of investment made and the fund manager who manages the investments, subscribers can switch over from one investment option to another or from one fund manager to another subject to certain regulatory constraints.
Pension Fund Managers (PFM’s):
The following are the Fund Managers for the scheme at present:
  • HDFC Pension Management Limited
  • ICICI Prudential Pension Fund Management Company Limited
  • Kotak Mahindra Pension Fund Limited
  • LIC Pension Fund Limited
  • SBI Pension Funds Private Limited
  • UTI Retirement Solutions Limited
  • Aditya Birla Sun Life Pension management Ltd.
Partial Withdrawal:

Yes, allowed but will under specific circumstances given by PFRDA
  • Subscriber should be in NPS for 3 year.
  • Amount should not exceed 25% of the contributions made by the subscriber.
  • Maximum 3 times during entire tenure, Minimum 5 years gap between consecutive withdrawals.
Nomination:: Nomination is available.
Other facilities:
  • Account can be transferred from one POP to another
  • Provision for change in subscriber details, investment scheme, fund manager etc is available.