NPS Vatsalya: Building a Pensioned Society from an Early Age

Retirement planning isn’t just for grown-ups anymore. With the introduction of NPS Vatsalya, it’s now possible to secure the future of the younger generation by instilling the habit of saving early on. This unique scheme under the National Pension System (NPS) can empower children and set them on the path to financial independence.

What is NPS Vatsalya?

NPS Vatsalya is a contributory pension scheme, regulated and administered by Pension Fund Regulatory and Development Authority (PFRDA), designed to help parents & guardians start saving early for a child’s retirement, ensuring their long-term financial security. The scheme provides a robust financial foundation and promotes financial discipline that benefits the subscriber throughout their life.

What are the key features of NPS Vatsalya?

1. For Minors, Operated by Guardians

NPS Vatsalya is a retirement savings plan available exclusively for Indian citizens under the age of 18, where the account is managed by a guardian on behalf of the child until they reach the age of 18 years.

2. Flexible Contributions

The scheme allows starting with a minimum contribution of just Rs. 1,000 per year, with the flexibility to contribute more as needed. There is no upper limit on the contributions, providing the freedom to save as much as desired for the child’s future. The initial deposit required to enroll in the scheme is Rs. 1,000.

3. Diversified Investment Plan

The contributions made by the subscriber are invested across asset classes, including equity, corporate bonds, and government securities, enabling market-linked growth while shielding from the risk of over exposure in an asset class and offering the potential to build a substantial corpus over time.

Opening and Managing an NPS Vatsalya Account:

• Open an Account: Guardians can open an NPS Vatsalya account easily at any major bank, India Post, pension fund office, or even online through the eNPS platform. All that is required are two key documents: proof of the child’s date of birth and guardian’s KYC details.
• PRAN: A unique Permanent Retirement Account Number (PRAN) is issued in the minor’s name. Guardians can open only one NPS Vatsalya account per child.
• Nomination: When the account is opened, the guardian becomes the nominee for the minor’s NPS Vatsalya
• Exit Options: The subscriber can exit on attainment of age of 18 years. At that time:

– At least 80% of the total amount saved in the account (accumulated corpus) must be used to buy a regular pension (annuity). The remaining shall be paid as a one-time payment (lump sum).

– If the total saving (accumulated corpus) in the account is ₹2.5 lakh or less, or if no purchase of annuity (pension plan) is available from empanelled Annuity Service Providers (‘ASPs’), the subscriber shall have the option to withdraw the entire accumulated pension wealth.

In case of minor subscriber ‘s passing away, the accumulated amount will be given to the guardian. In the event of the guardian’s death during the account’s subsistence, a new guardian must be registered on behalf of minor by submitting KYC document as specified by PFRDA. In case of death of both the parents, the legally appointed guardian can continue managing the account, with or without adding more contributions to the account and upon attainment of 18 years of age, the subscriber can exit from the scheme.

• Investment Choices

The contributions made by the subscriber are invested according to the choices (Pension Fund and Asset allocation) exercised and recorded with CRA (Central Recordkeeping Agency), in accordance with the investment guidelines set by PFRDA.

The money contributed by the subscriber are invested based on their selected Pension Fund and asset allocation, as recorded with the Central Recordkeeping Agency (CRA). These investments follow guidelines set by PFRDA for different types of assets:

– Equity (Asset Class E): Shares of the top 200 companies listed on NSE/BSE, based on market capitalisation.

– Corporate Bonds/Debentures (Asset Class C) that are listed and have a rating not below “A”.

– Government Securities and State Development Loans (Asset Class G)

– Alternate Assets (Asset Class A)

Visit circulars section of the PFRDA website for detailed investment guidelines.

Why Choose NPS Vatsalya?

• Aids in financial literacy: The earlier the child starts saving, the more they can learn the value of money and the importance of long-term savings.
• Start Saving Young: An NPS Vatsalya account sets children on the path to smart financial planning, encouraging early saving habits and long-term security.
• Long-Term Commitment to the Child’s Future: NPS Vatsalya is not just a savings plan; it’s an investment in the child’s future well-being, giving them a solid foundation to face life’s challenges.
• Partial Withdrawals: NPS Vatsalya allows partial withdrawals. In case of emergencies, partial withdrawals can be made for purposes such as education, medical treatment, or disability (over 75%) of minor subscriber. This provides flexibility and support when it’s needed most. Additionally, up to 25% of the contributions can be withdrawn with a simple declaration after a minimum of three years from the date of account opening. This option can be used up to three times before the child turns 18.
• Account status at the age of 18: In case the account was not closed when the minor turns 18, it will remain active and automatically convert into a Tier-I NPS account under the All Citizen Model. On transitioning the features, benefits, and exit norms of the NPS-Tier I for All Citizen Model will apply to the account. A fresh KYC of the subscriber must be carried out within 3 months of reaching majority (age of 18 years). The contribution to the NPS Tier 1 account will be allowed after submission of fresh KYC.
• Opening an account for NRIs and OCIs: Even Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) can open an NPS Vatsalya account, as long as the minor is an Indian citizen. A separate form us applicable for guardians who are NRIs or OCIs. If the guardian is an NRI or OCI, they’ll need to have a bank account (NRE or NRO) to get started.
• Benefits of wealth creation due to long term investing: Starting early allows the contributions to grow steadily over time, leading to a larger corpus that can provide greater financial security for the child’s future.

NPS Vatsalya is more than a pension scheme—it’s a tool for nurturing financial awareness and security from an early age. By enrolling in this scheme, guardians are not only securing their child’s future but also contributing to building a financially disciplined society.

Take the first step today and give your loved ones the gift of financial independence with NPS Vatsalya.

Indian Bank. “Your Own Bank, Always with You”

Disclaimer: https://indianbank.in/departments/disclaimer/