Nirmala Sitharaman launches NPS Vatsalya for Minors

Nirmala Sitharaman, Union Finance Minister, launched the NPS Vatsalya scheme for minors in New Delhi on 17 September 2024. The event was attended by schoolchildren and was held simultaneously in 75 locations across the country. She also distributed the Permanent Retirement Account Number (PRAN) cards to new minor subscribers.

Nirmala Sitharaman announced the NPS Vatsalya scheme in her 2024-25 union budget speech.

The NPS Vatsalya will be regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

About the NPS Vatsalya 

• National Pension System (NPS) Vatsalya is for minors under 18 years of age and who are residents of India.
• The NPS Vatsalya account is not for non-resident Indians (NRI).
• An NPS -Tier II account will be opened in the name of the minor.
• A Tier-II account is a voluntary savings pension scheme linked to the subscriber's Permanent Retirement Account Number (PRAN).
• Each National Pension System subscriber is provided with a unique 12-digit alphanumeric PRAN number that remains with the subscriber until the end.

Contribution, Withdrawal, Exit facility 

• The minimum contribution under the NPS Vatsalya scheme is Rs 1000  per year, with no maximum limit.
• The parents can contribute on behalf of the minor.
• The lock-in period is three years.
• After three years, the subscriber can partially withdraw 25 per cent of the corpus(the invested amount plus the return on the amount) for education, specified illness, and disability. 
• The partial withdrawal is allowed only three times the duration of the scheme.

What happens when a subscriber attains 18 years of age?

After the subscriber attains the age of 18 years, the subscriber has the option to shift to an NPS Tier-1 account or 

• If the corpus (total amount) is equal to or less than Rs 2.5 lakhs, the subscriber can withdraw the whole amount.
• If the corpus is more than Rs 2.5 lakhs, the subscriber can withdraw 20 per cent, and the other 80 per cent will be used to buy an annuity policy from a designated insurance company. 
• The insurance company will give a pension to the subscriber depending upon the annuity amount.

Is the return Guaranteed?

A pension fund manager approved by the Pension Fund Regulatory and Development Authority (PFRDA) handles a subscriber's investment in the NPS I, II, or both.

The Pension Fund Manager invests in the market (shares, bonds, debentures, etc.), and the return depends on the performance of the investment. 

National Pension System 

• The National Pension System is a voluntary contributory post-retirement pension scheme launched on 1 January 2004 by the government of India. Initially, it was for the central government employees, but it was extended to all on 1 May 2009.
• The National Pension System offers NPS -1 and NPS- II accounts. 
• The NPS I is open to all resident Indians and non-resident Indians(NRI) aged 18 to 70.
• A person who has an NPS -I account can open an NPS- II account, but the NPS- II account is for resident Indians only.
• The minimum annual contribution for the NPS-I account is Rs 1000, while there is no minimum contribution requirement for the NPS-II account. 
• There is greater flexibility in withdrawal and exit in NPS- II compared to NPS- I account.
• The NPS is regulated by PFRDA, with its headquarters in New Delhi.

Chairman of PFRDA: Deepak Mohanty.