NPS Vatsalya scheme

Context:

Union Finance Minister Nirmala Sitharamanofficially launched theNPS Vatsalya schemein line with the announcement made in the Union Budget 2024.

NPS Vatsalya scheme:

• The NPS Vatsalya isan extension of the existing National Pension Scheme but focuses on children..
• Managed by the Pension Fund Regulatory and Development Authority(PFRDA),the scheme will befocused 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 contributionsare invested in market-linked securities like equities and bonds, which could yield higher returns.

National Pension System (NPS):

• It is aretirement benefit scheme introduced by the Government of India to facilitate regular income post-retirement for all subscribers
• It was launched on1st 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.

• Eligibility for NPS Vatsalya as follows
• Allminor citizens(age below 18 years).
• Both the child and the parent must beIndian citizens. All parties must comply with theKnow Your Customer (KYC)requirements.
• Accountcanbe openedin thename of a minorand operated by parent or guardian. Minor will be the beneficiary.
• Scheme can be opened through variousPoints of presenceregulated by Pension Fund Regulatory Authority of India (PFRDA)such asmajor banks, India Post, Pension Fundsand Online platform (e-NPS).
• Contribution:Subscriber to make aminimum contribution of Rs 1000/- per annum. There isno limiton themaximum contribution.

Withdrawal rules

• After three yearsof opening the NPS vastsalya 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 Up to 25% of the corpus can be withdrawn for specific purposes, including education, medical treatment for certain illnesses, or disabilities over 75%.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child attains the age of 18, the corpus ofup to Rs 2.5 lakh can be withdrawnentirely and if it exceeds, the 20% can be withdrawn and the rest 80% can be used for annuity purchase in the NPS.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 asubscriber's death, theentire 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.