Preparing for retirement is crucial to ensure one has a comfortable life after working for several years. Lack of regular earnings can present unique difficulties in retirement, which is why pension funds are essential components of people’s financial strategy.
In the case of Non-Resident Indians (NRIs), investing in India’s pension schemes could be advantageous and secure for the long run. There are numerous pensions coups in India running by government as well as private sectors for resident Indians and NRIs both.
The pension plans for the people are available through different private companies such as Bajaj Allianz, Kotak life, ABSLI, and Tata AIA but people can opt for government pension schemes as well which are National Pension Scheme (NPS), Old Pension Scheme (OPS), and the new launched Unified Pension Scheme (UPS). Here are some more details about these government sponsored pension funds.
National Pension Scheme (NPS)
As was mentioned earlier, the National Pension Scheme or NPS, which began in January 2004, was originally for the government employees only. Nonetheless, this scheme was extended to all the citizens of India in 2009, and NRIs have equal rights to invest in this scheme as well.
The NPS enables the subscriber to make periodic contributions to a pension account; a portion of the accumulated amount is payable on retirement. The rest is invested in purchasing an annuity that offers a constant source of income to the customers after they have retired.
Key features of NPS
Voluntary Participation: Available for all the employees except the armed forces who have joined the central government after 1st of January 2004. Employees of private sector and Non Resident Indians are also qualified.
Contribution Rates: The employees of the central government pay 10% of their basic wages while the government caters for the rest at 14%. Other citizens can pay at least 500Rs monthly.
Market-Linked Returns: It also states that the pension amount is not fixed in the given structures as its value depends on the market outcomes.
Tax Benefits: The contribution made to NPS is also tax exemptible and, up to 60 % of the corpus can be withdrawn without paying taxes on maturity.
NPS for NRIs:
As per the guidelines set up by the Indian Government, NRIs can open an NPS account if they hold PAN card, have a bank account and are in the age bracket of 18-60 years. It has a low-cost drift point of admission, high potential for high revenues and the investors can choose their fund managers and type of fund.
Old Pension Scheme (OPS)
Old pension scheme is a regular pension program of the government offering monthly pension to public servants who served for least ten years. There is a pension related to the last basic salary an employee served as well as years of service. However, it is to be noted that OPS is only for the government employees and NRIS can not invest in this scheme.
Key features of OPS:
Fixed Pension: This company pays monthly pensions and in order to do so 50% of the last drawn salary as pensions.
No Employee Contribution: It has no employees’ affiliation hence financially sensitive hence cannot be implemented by the government of South Africa.
Inflation Adjustment: There are cases whereby pension amounts are determined by relics or new scales and rates of Dearness Allowance (DA).
Unified Pension Scheme (UPS)
Government has recently introduced the Unified Pension Scheme (UPS) on 24th Aug 2024, which is a blend of the old and new pension schemes (OPS and NPS). It gives government servants a pension of 50% of the basic salary after 25 yrs at least of service. The scheme, which will take effect on April 1, 2025, is expected to benefit 2.3 million employees. Currently, NRIs cannot invest in UPS.
Key features of UPS
Assured Pension: So for instance, people who have worked for 25 years or more get a pension, which is determined by the average of the basic salary and dearness allowance of the final 12 months of service.
Minimum Pension: Employees who have worked for at least ten years are guaranteed at least a pension of Rs10,000 a month.
Family Pension: In case of the pensioner’s death, the spouse is entitled to 60% of the pension amount.
As for investment, any Non-Resident Indian (NRI) planning their retirement can take advantage of the National Pension Scheme (NPS), which is actually an efficient way of long-term saving that is also tax efficient, where an NRI can contribute according to their convenience and is managed by professional fund managers. NPS is specially designed to be a market linked pension plan exclusively for individuals and where as OPS & UPS are pensions plans of civil employees.
