New Pension Scheme Investment by Government Employees : NPS investment has to be made compulsorily by government employees under the New Pension Scheme .
There are two types of accounts under the New Pension Scheme – Tier-I and Tier-II. NPS investment is mandatory in Tier-I account, while it is voluntary in Tier-II.
The central government had introduced another NPS investment scheme in August 2020 , which is related to investment in Tier-II.
So let’s know how NPS investment is done by a government employee under the New Pension Scheme.
Read also: Important NPS Tax Benefits for Government Employees
New Pension Scheme Investment by Government Employees –
NPS Investment in Tier-I
As we have already told that a government employee has to compulsorily make NPS investment in Tier-I .
There are two types of NPS investment in Tier-I – one by a government employee and the other by the government.
The NPS investment made by a government employee is 10% of the sum of Basic Pay and Dearness Allowance of that employee.
For this investment, the employee does not have to do any process from his side.
It is the responsibility of the concerned DDO to deduct from the salary of that employee for NPS investment and inform that deduction to the concerned PAO.
The PAO uploads the details of this deduction to the CRA system and thereafter the deduction made from the salary of the employee is credited to his Tier-I.
The second contribution to the Tier-I account of a government employee is made by the government, which is currently 14% of the sum of Basic Pay and Dearness Allowance of the employee.
This benefit is available only to government employees and salaried employees.
Facility has been made available for government employees covered under NPS to choose their preferred fund manager from among the eight fund managers with effect from 1st April 2019. These fund managers manage the NPS investments made by the government employees.
These eight fund managers are as follows-
- Aditya Birla Sun Life Pension Management Limited.
- HDFC Pension Management Company Limited.
- UTI Retirement Solutions Limited.
- SBI Pension Funds Private Limited.
- ICICI Prudential Pension Funds Management Company Limited.
- Reliance Pension Fund.
- Kotak Mahindra Pension Fund Limited.
- LIC Pension Fund.
If a government employee does not choose the fund manager of his choice while filling the NPS Subscriber Form, then the money invested by him in NPS is divided among the following three pension fund managers in a certain ratio-
- LIC Pension Fund Limited
- SBI Pension Funds Pvt. Limited
- UTI Retirement Solutions Limited
These three fund managers will now manage the NPS investment of that employee .
After the selection of fund managers, now a government employee can choose any one of the following four asset allocations-
- Default Scheme – Under this, investment will be made in LIC, UTI and SBI.
- Scheme G – 100% investment in government bonds. This investment is a good choice for those government employees who want to take the least risk, even if the returns are low.
- Scheme LC 50 – Under this, maximum 50% of the total asset is invested in Equity.
- Scheme LC 25 – Under this, maximum 25% of the total asset is invested in Equity.
Initially fund managers of the NPS scheme for government employees were allowed to invest only 15% of the contribution in equity, which has been increased to 50% from 2019 onwards.
NPS Investment in Tier-II
A government employee can invest in Tier-II only if his Tier-I account is open.
Investment in Tier-II of New Pension Scheme is voluntary for any person including government employees.
If a government employee wants to invest in Tier-II, he can do so as per his wish.
Earlier, no income tax exemption was available on the amount invested in it. That’s why government employees did not show much interest in investing in it.
But according to a scheme introduced by the central government, if a government employee invests in Tier-II, then he can show this investment in the income tax exemption of Rs 1.5 lakh under 80C.
Partial investment of withdrawal money at the time of retirement:
Under the new pension scheme, retired employees can withdraw only 60% of the amount at the time of retirement and the remaining 40% is used in the life insurance plan.
Retirees can buy life insurance plans through all types of insurance companies, banks and financial institutions as per their requirement.
A retired person can get regular monthly pension for the rest of his life on the basis of this amount invested in life insurance.
If a government employee chooses to leave NPS before reaching his retirement age i.e. 60 years, then he will get only eighty percent of the total pension received under Mandatory Annuity after retirement.
Summary:
- It is mandatory for a government employee to invest in a Tier-I account, while it is voluntary in Tier-II.
- Investment in Tier-I of a government employee is made by that employee as well as by the government.
- This investment made by the employee and the government is 10% and 14% of the sum of his Basic Pay and Dearness Allowance respectively.
- Government employees covered under NPS can choose their preferred fund manager from among the eight fund managers.
- Default Fund Manager for Government Employees- LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited
- Fund managers are allowed to invest up to 50% of the contribution to NPS by a government employee in equities.
- Retired employees can withdraw only up to 60% from their NPS corpus and the remaining 40% is invested in life insurance plans.
If you liked this article, please don’t forget to share.
