What is the Corporate National System (NPS)?
Retirement is an inevitable phase of life, and it is a period that many of us look forward to. However, in India, many individuals are ill-prepared for retirement. They often rely on their children to support them in their golden years. Unfortunately, these retirement years can sometimes be financially challenging and uncertain.
In the ever-evolving landscape of employee benefits, the NPS (National Pension System) has gained prominence as a vital tool for securing financial stability during retirement. Corporate NPS, an extension of the standard NPS, is a retirement savings scheme offered by employers to their employees.
In this blog, we will explore the concept of NPS and corporate NPS and their differences. Additionally, we will explore corporate NPS’s benefits and who can help your company get started on offering this to their employees.
What Is NPS?
The National Pension System (NPS) is a retirement savings program based on defined contributions. It allows individuals to voluntarily contribute to their individual pension account throughout their working years, ultimately building a pension fund from which they can derive a steady income after retirement or upon reaching the designated retirement age.
What is Corporate NPS?
Corporate NPS is a pension contribution fund that allows employees and their employers to contribute a portion of their salary towards their retirement. These contributions are invested into stocks, bonds, and other securities.
Contributions to NPS offer a high degree of flexibility, dependent on the employer’s compensation and retirement benefit policies for its employees. Employees and employers can contribute equal or unequal contributions to the scheme.
There is no obligation for the employer to contribute to the NPS accounts of their employees, giving employers the discretion to choose their level of involvement in this regard.
NPS is managed by the PFRDA (Pension Fund Regulatory and Development Authority). PFRDA has prudent regulation, transparent investment guidelines, and regular monitoring of fund managers conducted by the NPS Trust.
NPS accounts are easily portable, which allows individuals to maintain their accounts regardless of changes in their geographical location or employment circumstances.
NPS offers flexibility in several key aspects, including the choice of Point of Presence (PoP), Pension Fund Managers (PFMs), Investment Options, Annuity Service Providers, and Annuity schemes.
Compared to similar pension schemes worldwide, NPS is recognised for its cost-effectiveness, offering a low-cost solution for retirement savings.
NPS transactions are user-friendly and web-enabled, ensuring ease of use for account holders. All transactions are tracked and recorded through the Central Recordkeeping Agency (CRA) system. Individuals can conveniently check their fund balance, Net Asset Value (NAV), and contribution status through the CRA website.
Differences between NPS and corporate NPS
Here are the major differences employees and employers can look to understand NPS and CNPS better:
Applicability and sponsors
NPS is available for all the citizens of India and is sponsored by the government of India. People from the private, public, and unorganised sectors can also opt for an NPS. In contrast, corporate NPS is exclusively available to employees of corporations that have chosen to participate, with sponsorship provided by the corporate entity.
NPS is under the exclusive management of PFRDA, while CNPS is overseen by a trustee designated by the corporate entity.
Investment of contributions
Under NPS, individual contributors have an option to choose their fund managers. Whereas in NPS, investment managers are appointed beforehand.
Both individuals as well as employers get a tax deduction when investing in an NPS.
Withdrawals and annuities
NPS permits partial withdrawals after three years of subscription completion, with a requirement that 40% of the corpus must be utilised to secure annuities during retirement. In contrast, CNPS allows employers to establish a trust deed, enabling flexibility in making withdrawals based on their chosen guidelines.
Benefits of corporate NPS to employers
The NPS scheme offers several advantages to employers:
Companies registered with NPS can enjoy tax benefits when they contribute to their employees’ pension funds.
Business expense deduction
Since April 1, 2012, up to 10% of the employer’s contribution towards pensions can be deducted as a legitimate business expense.
Corporations can save on expenses associated with trust establishment, fund management, and recordkeeping.
Companies have the option to either select a pension fund for their employees or allow employees to make their own choices.
NPS provides a platform for co-contributing towards employees’ pension plans, fostering a collaborative approach to retirement savings.
We understand the importance of corporate pension schemes in securing your employees’ financial future. This scheme also helps you to save up on your taxes. If you are an HR or a curious employee, connect with us now. FloatR can guide your company at every turn and help you plan an efficient corporate pension plan for your employees. Corporate NPS ensures retirement stability and overall well-being, and we make it seamless. Take the first step towards financial empowerment with FloatR and corporate NPS – your employees’ brighter tomorrow starts today!