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What Are Government Pension Schemes And Its Benefits?

Published On Jan 25, 2022 11:30 AM By InsuranceDekho

This plan is governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA). It was created by the Indian government to provide financial security to older persons in India. The GPS plan offers excellent long-term savings choices, allowing an individual to efficiently plan his or her retirement time by investing in this safe market-based plan.

What Are Government Pension Schemes And Its Benefits?

Government Pension Plans And Their Benefits?

Except for individuals who work in the Armed Forces, all employees in the public, private, and unorganized sectors are eligible for the Government Pension Scheme, commonly known as the Government Pension System. Subscribers to the GPS plan can pay a minimum annual contribution of Rs.6,000, which can be paid in one single amount or as monthly installments of Rs.500. The subscribers' contributions are invested in market-linked instruments like debt and equity in the GPS system, and the rewards are contingent on the success of these assets. On contributions made to the NPS, the current interest rate is 8-10 percent. The Government Pension Scheme account can be opened by any Indian citizen between the ages of 18 and 60 years. The Government Pension Scheme, which is governed by PFRDA, matures at 60 years old and can be extended to 70 years old. After three years of account establishment, members can withdraw up to 25% of their contributions in certain circumstances, such as buying a house, funding a child's education, or treating serious diseases.

GPS Benefits - Government Pension Scheme

The National Pension Scheme offers the following advantages:

1. Returns/Interest

A part of the GPS payment is invested in stocks, which provides greater returns than other traditional tax-saving investment choices like the PPF. This plan is best suited for those who desire to build savings over time and live a financially comfortable life after retirement, with an interest rate of 9 percent to 12 percent.

2. Benefits of GPS

Individuals can also take advantage of this GPS feature. Section 80C of the Income Tax Act allows for tax exemption on contributions made to the GPS plan up to a maximum of Rs.1.5 lakhs. Furthermore, the employer and employee contributions to the Government Pension Scheme are also tax-deductible.

3. Exit Rules and Early Withdrawals

Returns from the Government Pension Plan GPS must be invested in as a pension program until you reach the age of 60. After three years from the date of account establishment, however, partial withdrawals are permitted. Subscribers have the option of withdrawing up to 25% of their entire donation. Only in exceptional situations, such as funding a child's education, acquiring a home, or in the event of a medical emergency, is a premature withdrawal permitted. During the whole duration, subscribers can withdraw up to three times in 5-year intervals. Only Tier I accounts are subject to these regulations; Tier II accounts are not.

4. Rules for Distributing Equity

Investing in GPS is done through a separate program. Investors can only invest up to 50% of their money in equities, according to the equity allocation guideline. Active choice and auto choice are two investing alternatives. On the one hand, active choice allows investors to pick their funds and split their investments according to their risk appetite and appropriateness; on the other hand, auto choice invests based on the investors' risk profile and age.

Take Away

If the above benefits match their risk profile and investment goal, an individual should consider joining the GPS plan. There are various mutual funds that appeal to investors from all walks of life if someone desires more equity exposure.

You may also like: Pros And Cons Of NPS

Is Pension Plan Better Than PPF For The Elderly?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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