Michael J. Birnbaum

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People over 65 can open an NPS account now; Check the new rules

People over 65 can open an NPS account now; Check the new rules | Photo credit: Getty Images

New Delhi: In order to make the National Pension Scheme (NPS) more attractive to seniors, the Pension Fund Regulatory & Development Authority recently allowed seniors over 65 (up to 70) to open an NPS account. Previously, the PFRDA had raised the maximum age for membership in the NPS from 60 to 65.

Now, any Indian Citizen, Resident or Non-Resident and Overseas Indian Citizen (OIC) aged 65-70 can also join NPS and continue or defer their NPS account until the age of 75. Subscribers who closed their NPS accounts at age 65 are now allowed to open a new NPS account according to age eligibility standards.

While people over the age of 65 can now open an NPS account, experts say you should not enter the program after the age of 60 as it involves a lot of risk and minimizes the magnitude of returns. . Once a person crosses 60, they will only have 15 years to invest in the NPS, which reduces the scope of funding. At maturity, a subscriber is allowed to withdraw a maximum of 60% of the corpus as a lump sum and the remaining 40% must be used to purchase an annuity.

Here are some of the risks of investing in NPS after 60 years:

1. Liquidity risk: The amount invested in the NPS remains blocked for at least three years. Even if you invest in it after 60 years, the minimum downtime remains the same. This rule may not be suitable for older people because they will not have access to cash.

2. NPS returns are not insured: NPS is a market linked product, so it does not offer a guaranteed return to investors. An investor should remain invested in the program for the longer term in order to obtain a higher return even if they do not take exposure to equities. For seniors, investing in a plan that does not guarantee returns may not be a wise choice. In contrast, schemes like the Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) offer a guaranteed rate of return to investors.

3. Compulsory pension: 40% of the NPS maturity corpus must be invested in annuity plans, which typically offer a return of between 4% and 5% and this annuity income is taxable. For this reason, the overall returns of the NPS are reduced, making it an investment option that is not ideal for the elderly.

4. Lower investment horizon: NPS can generate good returns over the long term, as stocks typically outperform other asset classes if the investment horizon is long. However, after the age of 60, one cannot stay invested in the plan any longer. Thus, the scope of the return is reduced.

5. Equity exposure: Since seniors cannot gain significant exposure to equities, they must invest in government debt or corporate debt funds, which currently offer low returns. Also in the near future, these funds are expected to generate a yield of less than 6% due to the current interest rate scenario. Even if a senior takes 50% exposure to stocks, they may not get good returns because the investment period is short.

6. Taxation: Annuity income received by a person is taxable in the hands of the elderly according to their tax bracket in the year of receipt. If a person is in the 30% tax bracket, their annuity income will be taxable at this rate, thus reducing overall pension income.

It should be added that there are tax advantages for NPS subscribers. The contribution paid to the NPS not only gives the right to a deduction under Article 80 CCD (1) up to a limit of Rs 1.5 lakh per fiscal year, but it is also accompanied by an additional tax advantage in under section 80CCD (1B) up to Rs 50,000 per fiscal year.

For those who join the NPS after the age of 65, the advantage is in terms of better annuity rates compared to younger people. The annuity rate for a 65-year-old is better compared to the annuity rate for a 55-year-old. Note that for those looking to join the NPS after 65, the goal should not be just to save taxes but to create a body of work to supplement the pension during retirement. years.

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