NPS update: The National Pension Scheme (NPS) Vatsalya, introduced on September 18, is a pension plan designed for parents to initiate for their children. The scheme has gained traction, attracting 66,495 subscribers as of November 17, as confirmed by Minister of State for Finance Pankaj Chaudhary. Among the states, Maharashtra leads with 9,219 accounts, followed closely by Andhra Pradesh and Karnataka, each surpassing 6,500 subscribers. Across 18 states, more than 1,000 accounts were opened. Dadra & Nagar Haveli and Arunachal Pradesh exhibited the lowest subscription rates with 23 and 40 subscribers respectively, while Lakshadweep and Ladakh had less than five subscribers each.
The NPS, known as a reliable retirement option, has been expanded to include minors through this new scheme. Parents can set up a pension account through NPS Vatsalya to save for their children's future. This option is available to all Indian citizens under the age of 18. The guardian will be responsible for opening and managing the account on behalf of the minor.
Key features
Like the standard NPS accounts, the PFRDA oversees this scheme as well.
Parents and guardians have the option to contribute a minimum of Rs 1,000 to the account for minors, with no maximum limit.
The initial contribution required for enrollment under the scheme is Rs 1,000.
Upon the minor reaching 18 years of age, the account will be converted into an NPS account.
Withdrawal clauses
According to the NPS Trust FAQs on NPS Vatsalya, the subscriber can exit on the attainment of the age of 18 years. The scheme enables full withdrawal after the minor turns 18, with restrictions based on the corpus size.
To make a full withdrawal from the account, the total corpus must be Rs 2.5 lakh or less. If it exceeds this amount, only 20% can be withdrawn, while the remaining funds must be invested in an annuity.
Upon withdrawal, at least 80% of the accumulated corpus in the account must be used to purchase an annuity, with any remaining balance paid as a lump sum.
If the total pension wealth in the account is Rs 2.5 lakh or less, or if no annuity is available from approved Annuity Service Providers (ASPs), the subscriber has the option to withdraw the entire pension wealth.
Partial withdrawal
Partial withdrawals from your NPS Vatsalya account are permitted for emergency situations. These include:
Funding the education of the minor subscriber
Covering the costs of treatment for specified illnesses of the minor subscriber
In case of disability exceeding 75% of the minor subscriber
A maximum of 25% of the contributions (excluding returns) can be withdrawn partially. This option is available on a declaration basis after a minimum of 3 years from the date of opening the account.
The partial withdrawal can be utilized up to three times until the subscriber reaches 18 years of age.
Key details
Partial withdrawals are allowable after the account has been open for a minimum of 3 years.
Specific situations where partial withdrawals are permitted include: funding the education of the minor subscriber, treatment of specified illnesses of the minor subscriber, and if the balance in the account exceeds 75 percent of the minor subscriber's total contributions.
The maximum amount that can be withdrawn is capped at 25 percent of the total contributions (excluding returns), significantly limiting the utility of partial withdrawals.
A maximum of 3 partial withdrawals can be made until the subscriber reaches the age of 18.
Investment pattern
The contributions provided by the subscriber are diversified based on the selections made for the Pension Fund and Asset allocation, as documented with the CRA. This aligns with the investment criteria set forth by PFRDA for each specific asset class:
Asset Class E comprises equity shares of the top 200 companies listed on NSE/BSE by market capitalization. Asset Class C consists of corporate bonds and debentures. Asset Class G includes government securities and State Development Loans. Asset Class A encompasses alternate assets.
NPS Vatsalya Scheme Formula
The formula to calculate a maturity amount under the NPS Vatsalya Scheme is A = P (1 + r/n) ^ nt, where:
A: is the amount P: is the principal sum r: is the rate of interest n: is the number of times interest compounds t: is the number of years