The National Pension System (NPS) can cater to various financial needs and segments of the society, whether a corporate or government employee and self-employed, to a resident or a non-resident Indian. What makes this scheme unique is the opportunity it provides subscribers to save for retirement and generate inflation-beating returns and create wealth. Retirement savings have become crucial today, given the higher longevity of Indians and the fact that a significant number of the population over the next few decades will be 60 and above, and their financial security will be critical. Many studies show that the senior population in India is expected to increase from 10.5 per cent of the total in 2022 to 20.8 per cent by the middle of the century.

Longevity Brings New Challenge

By 2050, every fifth Indian citizen will be more than 60 years old, as life expectancy continues to increase due to medical advances, which means they will have to financially secure themselves for at least 2-3 decades more after the official retirement age of 60. So, it is crucial to consider this when planning for retirement to ensure you don’t run out of savings in your lifetime. During his speech at Outlook Money’s 40After40 Retirement Expo from Oct 4-5, Deepak Mohanty, chairperson of the Pension Fund Regulatory and Development Authority (PFRDA), emphasised this point and said that women could be at higher risk as they usually live longer than men and pension can be an important financial safeguard in their old age.

Securing Compounding Growth

Not everybody can save money in crores. Hence, compounding interest is a powerful tool to grow your investments in the market over the long term. It can enable a person to create a significant corpus with the help of the compounding growth of their investments. However, Mohanty says, “The compounding concept is not easily understood. For instance, with an annual return of say 8 per cent, Rs 100 could grow 10 times in 30 years but 101 times in 60 years.”

For financial independence, a regular cash flow is indispensable. Here, NPS can be a lifesaver

How NPS Can Ensure Regular Pension

Mohanty says NPS is a low-cost pension scheme with flexible deposit and withdrawal features. NPS’s new Balanced Life Cycle Fund for private-sector employees and NPS Vatsalya for minors offer more opportunities, catering to the needs of various sections of the society.

Mohanty stressed that NPS assets have grown to just about 4.5 percent of India’s GDP, suggesting that “the Indian Pension industry is still evolving and a long way to go”.

How Is NPS Useful?

• NPS offers online registration with flexible deposit norms. The account does not close if the minimum annual deposit amount is not met. One can do so later after paying a fee. One can select the asset class four times a year and the fund managers once a year.

• Investors can choose the best option for themselves depending on the risk appetite. For instance, one can select the active choice, which invests up to 75 per cent in equity.

• Up to 60 per cent withdrawal in a lump sum is allowed, and 40 per cent is invested in an annuity. The lump sum withdrawal can be delayed for up to 75 years.

• NPS also offers tax benefits in the old tax regime.

Besides, NPS transactions are done on the same day, and it has a penny-drop verification process for bank accounts and an anti-money laundering (AML) declaration facility on the e-NPS platform to check fraud.