Union Minister for Finance and Corporate Affairs Nirmala Sitharaman recently launched the National Pension System Vatsalya (NPS Vatsalya) scheme, ‘a pension scheme for minors’. The NPS Vatsalya was announced in the Union Budget 2024-25 on July 23, 2024.
Sitharaman also launched an online platform for subscribing to NPS Vatsalya and released the scheme brochure.
Sitharaman said NPS Vatsalya is based on the principle of intergenerational equity by providing cover to older and young members of the family.
NPS Vatsalya is an extension of the already existing NPS to children. In the last 10 years, NPS has 1.86 crore subscribers with an Asset Under Management (AUM) of Rs 13 lakh crore.
Children who are enrolled will receive PRAN cards (Permanent Retirement Account Number) as part of their initiation into the NPS.
Eligibility for NPS Vatsalya is as follows:
- All minor citizens (age below 18 years).
- The account can be opened in the name of a minor and operated by a parent or guardian. Minor will be the beneficiary.
- The scheme can be opened through various Points of Presence regulated by PFRDA such as major banks, India Post, Pension Funds and Online platform (e-NPS).
- Subscriber to make a minimum contribution of Rs 1000/- per annum. There is no limit on the maximum contribution.
- PFRDA will provide multiple investment choices to subscribers. Subscribers can take exposure to government securities, corporate debt, and equity in different proportions based on risk appetite and desired returns.
- On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.
Investment Choice
-Default Choice: Moderate Life Cycle Fund -LC-50 (50% equity)
-Auto Choice: Guardian can choose Lifecycle Fund – Aggressive-LC-75(75% equity), Moderate LC-50 (50% equity) or Conservative-LC-25 (25% equity) as per his/her risk appetite.
-Active Choice: Guardian actively decides the allocation of funds across Equity (up to 75%), Corporate Debt (upto 100%), Government Securities (up to 100%) and Alternate Asset (5%).
NPS Vatsalya: Where to open an account
• The NPS for Minor accounts can be opened through Point of Presence (POPs) registered with PFRDA either online or physical mode, which include major banks, India Post, Pension Fund etc. (List of PoPs is available on PFRDA website – www.pfrda.org.in).
• The online platform (eNPS) of NPS Trust
Documents required
• Date of Birth proof of the Minor (Birth certificate, School leaving certificate/ Matriculation Certificate, PAN and Passport)
• KYC of the Guardian shall be carried out by submitting Proof of Identity and Address (Aadhaar, Driving License, Passport, Voter ID card, NREGA Job Card and National Population Register)
• NRE / NRO Bank Account (solo or joint) of the minor in case the guardian is NRI.
Pension Fund Selection
Guardian can choose any one of the Pension Fund registered with PFRDA.
Exit / Withdrawal and Death before 18 Years of age
Partial withdrawal upto 25% of contribution on a declaration basis after a lock-in period of 3 years for education, specified illness and disability for a maximum of three times till subscribers attain 18 years of age.
• Exit upon attainment of 18 years subject to:
–Accumulated Corpus is equal to or greater than 2.5 lahks at least 80% of the balance to be utilised for the purchase of annuity and the remaining balance in a lump sum
–Accumulated Corpus is less than 2.5 lakh Option to withdraw the entire balance as a lump sum
-Death of the minor: entire accumulated Corpus returned to the guardian.
– Death of the guardian: another guardian to be registered through fresh KYC. In case of the death of both parents, the legally appointed guardian can continue the account with or without making contributions to the account, and upon attainment of 18 years of age, the subscriber has an option to continue or exit from the scheme.
Upon Attainment of Age of 18 Years
Children below the age of 18 years can open an NPS Vatsalya account, which will automatically get converted to a regular NPS account upon completion of 18 years of age. Pension will come from the account only upon attainment of 60 years of age.
–Seamless shift to NPS Tier – I (All Citizen)
–Fresh KYC of the minor within three months from the date of attaining 18 years.
–Upon transitioning, the features, benefits, and exit norms of the NPS-Tier I for All Citizen Model will apply
Kurian Jose, CEO, Tata Pension Management, explained that upon attainment of the age of 18 years, this account can be shifted seamlessly to NPS Tier – I (All Citizen).
“All features of investing through Auto Choice / Active Choice can be utilised for the same as well. By encouraging early investment and providing a structured savings plan, NPS Vatsalya aims to build a robust financial foundation for young individuals. This innovative approach not only ensures that children receive the benefits of disciplined saving and compounding over time but also fosters a sense of financial responsibility from an early age,” Jose said.
