Union Finance Minister Nirmala Sitharaman launched the NPS Vatsalya scheme

Union Finance Minister Nirmala Sitharaman officially launched the NPS Vatsalya scheme in line with the announcement made in the Union Budget 2024.

What is the NPS Vatsalya scheme?

• The NPS Vatsalya is an extension of the existing National Pension Scheme.
• Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the scheme will be focused on children and the investment made in this account will be to ensure long-term wealth.
• Under the scheme, parents can start saving for their child’s retirement fund.
• It functions similarly to the current NPS, which assists people in building a retirement fund by contributing consistently throughout the course of their careers.
• In contrast to conventional fixed-income alternatives, NPS contributions are invested in market-linked securities like equities and bonds, which could yield higher returns.

What are its features?

• The goal of NPS Vatsalya’s investment strategy is to give parents the ability to invest in a pension account as a way to save for their children’s future.
• The strategy attempts to ensure the participants’ long-term prosperity by utilizing the power of compounding.
• The initiative enables parents to put as little as Rs 1,000 into their child’s name each year by providing various contributions and investment options.
• This means that families with varying economic origins can participate in the programme.
• The scheme’s ability to allow parents to start saving for their child’s retirement at a very young age, even infancy, is one of its primary advantages. Over an extended investing term, compound interest can have a significant positive impact on earnings.

Withdrawal rules

• After three years of opening the NPS vatsalya account, partial withdrawals are allowed. Up to 25% of the corpus can be withdrawn for specific purposes, including education, medical treatment for certain illnesses, or disabilities over 75%.
• Once the child attains the age of 18, the corpus of up to Rs 2.5 lakh can be withdrawn entirely and if it exceeds, the 20% can be withdrawn and the rest 80% can be used for annuity purchase in the NPS.
• In the unfortunate event of a subscriber’s death, the entire corpus is given to the nominee, usually the guardian. If the guardian dies, a new guardian must be assigned after completing a new KYC.
• If both parents die, a legal guardian can manage the account without further contributions until the child turns 18.

What is the National Pension System (NPS)?

• It is a retirement benefit scheme introduced by the Government of India to facilitate regular income post-retirement for all subscribers.
• It was launched on 1st January, 2004. Initially, NPS was introduced for the new government recruits (except the armed forces).
• With effect from 1st May, 2009, NPS has been provided for all citizens of the country, including the unorganized sector workers on a voluntary basis.