NPS Vatsalya: How It Helps In Financial Planning For Retirement

Union Finance Minister Nirmala Sitharaman launched the NPS Vatsalya scheme for children early this month, allowing parents to give their children a headstart in their retirement savings journey. According to the scheme, parents can open an account and contribute to NPS Vatsalya on behalf of their children until they reach 18, and after that, they will need to hand over the control of the account to them.

All the features of the NPS Vatsalya scheme remains the same as the National Pension System (NPS). However, the only major difference is that the subscribers get additional years to save, which will allow them to accumulate more wealth. Given that people’s longevity has increased today, this additional timeframe will give them enough opportunity to secure their financial future.

What Is The Objective Of NPS Vatsalya?

NPS Vatsalya is designed to allow savings for retirement from childhood. It becomes a regular NPS account after the children reach 18. Until then, the parent contributes to the account. This strategy will allow the investments to harness the power of compounding for an extended phase and create a bigger corpus at retirement. It can also instil positive financial habits from an early age. Like NPS, NPS Vatsalya provides market-linked returns, or based on the performance of the assets in the portfolio.

The NPS scheme has grown steadily, with a corpus of over Rs 13 trillion now. It offers competitive returns. The equity component gave compound annual growth rate (CAGR)of 14.2 per cent since inception. NPS Vatsalya, integrated into the NPS architecture, offers the same core features and benefits at low cost.

One can contribute a minimum of Rs 1,000 yearly, allowing access to the economically weaker strata of the society. NPS Vatsalya allows partial withdrawals of up to 25 per cent of the corpus three times until the age of 18 for specific purposes. The scheme is available to both residents and non-resident Indians. Also, it is a digitally enabled, low-cost, market-linked plan, leveraging the existing NPS infrastructure to ensure financial people’s needs in old age.

Addressing Pension Needs In India

Pension is crucial for financial security and self-esteem in old age. However, ensuring pensions for all has been a major challenge in India. By 2050, one in five citizens in India will be over 60 and will require pensions. Unlike other countries, where most people are engaged in the organised sector, and pensions are jointly funded by the government and the employer, in India, it is more challenging because 81 per cent of the labour force comes from the unorganised sector. Hence, schemes like NPS Vatsalya can go a long way in ensuring pensions for all in India.