The age limit for joining the National Pension System (NPS) has recently been raised by the sector regulator, Pension Fund Regulatory and Development Authority (PFRDA), from 60 to 65. In other words, you can save up for a pension even if you have crossed the age of 60.
The normal NPS lock-in period is until the age of 60. If you join after 60, you cannot withdraw immediately. For such joiners, the lock-in period would be three years. After three years, you get all the withdrawal options available to younger joiners. These are a tax-free lump sum up to 40% of the corpus, a compulsory annuity of another 40% and the option to withdraw the balance 20% by paying tax on it or to use it also to buy an annuity.
You can also withdraw before three years are completed from the date of your entry. However, this would be termed a premature exit and you would have to use at least 80% of your corpus to buy an annuity. The balance 20% can be withdrawn after paying tax on it.
To answer the question, yes, joining the NPS even after 60 is a good idea. Here’s why:
We are all living longer and longer. Financial planners typically assume a lifespan extending up to the age of 85. This means your savings have to last for almost 25 years of retirement and pay for the numerous medical costs that accrue, as you age. You may already have a government or company pension but the purchasing power of these is often eroded by inflation. One of the best ways to protect yourself is to keep saving for as long as you possibly can.
The NPS is a highly flexible, market-linked method of saving for a pension. It allows you to invest in three asset classes – equities, government bonds and corporate bonds. The NPS equity option allows you to benefit from the compounding power of stocks without having to grapple with more complex decisions that mutual funds or direct stock buying involve.
The NPS has one of the lowest cost structures in the retirement saving space. Pension fund managers are allowed to charge just 0.01% of the corpus as the fund management fee. Other types of fees are levied on contributions but the overall expenses are much lower than the 1%-2.5% expense ratio that balanced funds and equity mutual funds charge.
The NPS comes with an additional tax deduction of Rs 50,000 under Section 80 CCD (1B). This is over and above the 80C deduction is used for Public Provident Fund, 5-year tax-savings, ELSS mutual fund and several other products (including NPS). Not joining the NPS would mean that you are losing out on this annual deduction.
Your NPS corpus will be passed down to your heirs in case you die before the corpus matures.