The Union Budget for FY 2024-25 brought some significant changes in the National Pension System (NPS). Union Minister of Finance Nirmala Sitharaman announced a new plan in the pension scheme, NPS Vatsalya, which will allow parents and guardians to open an NPS account for their children and contribute on their behalf till they attain majority.
The NPS account opened will later be transferred to the child upon attaining the age of majority and then will be converted into a regular NPS account. As present, the entry age in NPS is 18-70 years. However, after this change, it can be opened in the name of minors as well.
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Sitharaman said: “NPS-Vatsalya, a plan for contribution by parents and guardians for minors will be started. On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.”
Says Ranbheer Singh Dhariwal, chief executive officer, Max Life Pension Fund Management, “NPS Vatsalya is a commendable step forward in promoting retirement savings and fostering long-term financial security. By allowing parents and guardians to initiate their minor child’s NPS account, the initiative sets the foundation for responsible financial management from an early age. As these accounts transition into a regular NPS account upon adulthood, it provides a smooth continuation of savings habits into adulthood”.
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NPS has been in existence as a market-linked social security scheme since 2004 when it was first introduced only for government employees.
Later in 2009, the scheme was opened to all citizens to widen the coverage. As the Indian population is aging and by 2050, is expected to reach around 20 per cent of the total population, the government has been introducing several measures to make it more flexible to meet the needs of the subscribers. Some of the important changes introduced in the schemes are systematic lump sum withdrawal, partial withdrawal, choice of selecting pension fund managers, etc.
Besides introducing NPS Vatsalya, Sitharaman also announced that “a committee to review the NPS had made considerable progress in its work”.
“A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens,” she said.
Limit Enhanced For Non-Government Employer Contribution To NPS
There was one more important change announced in NPS with relation to employer’s contribution to NPS.
Sitharaman said: “To improve social security benefits, deduction of expenditure by employers towards NPS is proposed to be increased from 10 per cent to 14 per cent of the employee’s salary. Similarly, deduction of this expenditure up to 14 per cent of the salary from the income of employees in the private sector, public sector banks and undertakings, opting for the new tax regime, is proposed to be provided.”
