5 Reasons for Senior Citizens to Invest in National Pension System

Introduction

If you are looking for a regular pension in your senior years, then an investment instrument that comes recommended is the National Pension System or NPS.

NPS is a government-backed social security investment scheme that is designed to provide retirement income to individuals in the private, public or unorganised sectors. You can invest in NPS at regular intervals with as minimum contribution of Rs. 1,000 in a financial year. NPS investments are not capped at a certain amount and one can contribute an amount based on the pension income they desire. The contributions are invested in different securities like equity, corporate securities, government securities and alternatives depending on the investment mode selected. After the investment period, you get returns in the form of a regular pension.

Revision in Norms

Until a few months ago, the entry and exit age limit for NPS subscribers was 18-65 years. This meant that those above 65 wouldn’t be able to invest in NPS and reap its benefits. However, around mid-2021, the Pension Fund Regulatory and Development Authority (PFRDA) increased the entry limit of subscribers to 70 years. This means that as an individual, you have an additional 5 years to open an NPS account.

In case you have closed your earlier NPS account due to old age criteria, you can open a new NPS account with ICICI Direct and can remain invested till the age of 75.

Additional read: Securing life’s second innings with NPS (National Pension System)

Five Reasons Why You Should Invest in NPS

Now that the entry norm has been revised, you may be considering getting an NPS account for yourself. Here, we discuss five reasons why this may be a good idea:

1. Regular Income

In case you are worried about getting a regular source of income in post-retirement phase of your life, NPS can solve this by providing you a regular pension, thereby giving you stable financial support.

2. Better Returns

NPS allows you to invest up to 75% of contributions in equities. This means that the returns that you get will be better compared to other pension plans or fixed income securities. Please note – level of exposure to equities will depend on the investment mode chosen and your risk appetite.

3. Low Cost Investment

Investing in NPS doesn't require a large sum of money. Whether it is a Tier I or a Tier II account, you can start with as little as Rs. 1,000. It is an ideal investment for senior citizens as well.

Additional read: 7 things you need to know about NPS

4. Flexibility

NPS allows you the flexibility to choose your asset allocation. You can choose between debt and equity investments depending upon your risk appetite. If you have a higher risk appetite, you can choose to invest up to 75% in equities and enjoy higher pensions.

5. Tax Savings

For Tier I NPS investors, the tax benefits are considerable. An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.

Under Section 80CCD:

• NPS subscriber (salaried employees) can claim a deduction on their contribution to NPS of up to 10% of the salary (Basic + Dearness Allowance).
• The self-employed NPS subscribers can claim a tax deduction up to 20% of their gross income or Rs. 1,50,000 whichever is less

Under Section 80CCD (1B):

• NPS subscriber can claim tax deduction on an additional self-contribution upto Rs. 50,000/-

Conclusion

Now that the age limit for NPS entry has been increased, more and more senior citizens can consider investing in this instrument. NPS can be used a good investment tool to earn retirement income in the form of regular pensions.