The Pension Fund Regulatory and Development Authority has taken a major step to improve the security of the National Pension System.
PFRDA started the two-factor authentication process for access to the Central Recordkeeping Agency. This process started for common users on April 1. The purpose of this security update is to protect the interests of the customers and stakeholders involved in the NPS ecosystem.
New login system for NPS accounts
After the new step of the regulatory authority, users will now have to go through the process of Aadhaar-based login authentication from April 1, 2024.
It has been integrated with the ID and password-based login process of existing users. PFRDA stressed that this new login process is a development and is to safeguard against any unauthorized access and potential threats within the NPS system.
Along with this, efforts have to be made to remove the concerns related to this.
Transition process continues
Central Recordkeeping Agencies (CRAs) are continuously working to ensure a smooth transition to this system. The Standard Operating Procedures (SOP) for the Government Nodal Office are being updated to reflect the changes in the system. After this process, collaboration will continue with the nodal officers to make the common users aware of the upcoming changes.
Why change the existing NPS and CRA system?
The PFRDA circular states that nodal offices of the central government and state governments as well as pension-related autonomous body currently use password-based login for NPS transactions. Strengthening the authentication and login system with this new upgrade is a better step.
PFRDA aims to create a safe environment for all NPS conducted by government offices and autonomous agencies. For this, integration of Aadhaar-based login authentication has been envisaged. The NPS account is immediately blocked if a user repeatedly enters a wrong password.
After blocking, the password will have to be reset to recover the NPS account. For this, the user will have to answer secret questions or apply for an I-PIN.
What is the National Pension System and What Are Its Benefits?
NPS is a government-backed pension investment scheme offering market-linked returns managed professionally by pension funds regulated by PFRDA.
NPS investments offer systemized savings opportunities during working life and allow for a lump sum withdrawal post-retirement. Furthermore, investments qualify for tax deductions under Section 80C and 80CCD(1B), making NPS an ideal way of investing for retirement needs.
1. Tax-free withdrawal
NPS provides market-linked returns on your savings. Your funds are pooled together and invested by PFRDA-regulated professional fund managers into a diversified portfolio composed of Government Bonds, Corporate Debentures and Shares.
Each subscriber to the National Pension System is issued a permanent retirement account number or PRAN to help manage their NPS funds. Funds accumulate into two accounts: Tier-I and Tier-II. Funds accumulated in Tier-I are non-withdrawable.
Over 60% of NPS corpus is designated for tax-free annuity purchase at maturity under Section 80CCD(5) to guarantee regular pension income throughout your later life.
NPS allows for partial withdrawals of up to 25% for special purposes like purchasing a home, paying children’s education costs, or medical emergencies. You must keep your contributions intact for at least three years to claim this benefit; additionally, tax deductions for employer contributions under Section 80CCD(2) can also be claimed.
2. Tax-efficient investment
NPS is a defined-contribution pension scheme offering tax benefits on investments. Administered by the Pension Fund Regulatory and Development Authority of India (PFRDA), this pension plan is open to Indian citizens aged 18 or above who meet Know Your Customer (KYC) norms.
Individual savings in NPS are combined into a pension fund and managed by PFRDA-regulated professional fund managers in various asset classes like Equity (High Risk with High Returns), Corporate Bonds, Government Securities, and alternative assets to produce market-linked returns. Furthermore, withdrawals from NPS are entirely tax-free.
NPS contributions qualify for tax deduction under Section 80C of the Income Tax Act, making NPS one of the most tax-efficient investment options. You can invest a maximum of Rs 1.5 lakh each year into NPS and claim a deduction. NPS also offers many other advantages over its alternatives besides just tax relief!
3. Flexibility in withdrawal
NPS allows you to withdraw part of your savings at any point before reaching the traditional retirement age of 60, enabling you to adapt financial strategies as necessary and gain control over your money – providing greater independence and empowerment.
Furthermore, you have complete freedom when investing your money and can select an asset class of choice or switch funds at any time. Furthermore, the National Pension System offers low costs and portability that makes it a fantastic solution for long-term pension savings.
If you decide to continue contributing after the age 60 years or superannuation, or until retirement age, NPS offers multiple exit strategies including withdrawal and annuity purchase options that you can utilize at any point during its extended period. Furthermore, you may choose to defer both options until later when needed.
4. Tax-free annuity purchase
Given the increasing cost of living and life expectancy, building up an adequate corpus at retirement is a must for financial planning. That is where National Pension System (NPS) comes into play.
NPS (National Pension System) is a defined contribution scheme that pools individual savings into one diversified fund that invests in government bonds, bills, corporate debt, and shares to provide market-linked returns to subscribers.
At 60 years, upon withdrawing or superannuating, 80% of your pension corpus should be used to purchase an annuity and provide regular monthly income in retirement, while any excess can be taken as a lump sum withdrawal.
The NPS architecture includes three key components: Central Recordkeeping Agency (CRA), Annuity Service Providers (ASPs), and Point of Presence Service Providers (POP-SPs). POP-SPs are authorized branches of CRA that serve as collection points and offer customer services to NPS subscribers.
Is NPS a Good Investment?
NPS Investment Benefits Its National Pension System (NPS) accounts provide many advantages that can help ensure people secure their retirement days. NPS encourages early savings for retirement from an early age, provides opportunities to diversify investments across sectors, and allows tax savings of significant proportions.
Many investors still feel uncomfortable with NPS due to various concerns, including not being allowed to withdraw the funds before age 60, limited equity allocation options, and taxation issues surrounding annuity income once retirement arrives.
Companies that prioritize customer experience can use NPS to identify and address these problems, with brands like Apple and Amazon making use of NPS trends to drive continuous improvement. They also ensure they communicate regularly with their customers to make sure no opportunities are missed.
Ask open-ended questions to increase your Net Promoter score (NPS) by allowing respondents to freely express themselves. This will allow respondents to provide additional insight into their motivations and emotions as well as help you assess what’s working or not – plus be sure to measure NPS across all your channels, including pre-sale support as well as post-sale services.