Sitharaman Introduces NPS Vatsalya: Pension Accounts for Children

Sitharaman Introduces NPS Vatsalya: Union finance minister Nirmala Sitharaman on Wednesday said that the old-age financial security scheme, National Pension System (NPS) is a “very attractive proposition” for the private sector employees because their assets have increased at the compound annual growth rate of 43% as compared to 27% for the government employees.

According to Sitharaman, the NPS was simple, cheap, tax-effective, seçenekli and easily transportable pension system. NPS In the last 10 years has grown at the rate of 37% CAGR with 18.6 million subscribers and more than Rs 13 lakh crore in assets under management, she said.

NPS was started in 2004 and at the initial stage was applicable for central and state government employees only. In June, 2020, it was made available for the private sector as well.

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She is quoted saying this while unveiling of NPS Vatsalya, which she announced in her budget speech on 23rd of July, 2024.

NPS Vatsalya is for the children below eighteen years of age in which the minimum annual contribution is ₹ 1000. The account can be thus activated as a normal NPS account by the person after attaining the age of eighteen years. The beneficiary will receive or will be entitled to pension benefits depending on the corpus that has been accumulated and after his or her attainment of 60 years of age.

When speaking about the scheme, she said it will assist to enable people save for the pension benefits while still young 15-20 years before engaging in a job. “The NPS scheme generated competitive returns since its inception,” she said.

“For the non-government sector, it is absolutely stunning number,” she said while taling about returns on investments. “Of course, the markets have been very good, but the number is stunning,” she added.

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While in the non-government sector since 2020, the allowed asset classes have yielded 14% (CAGR) of equity and 9%. One percent or corporate debt and eight percent or Foreign Direct Investment. 8% for government securities.

If your portfolio is, for instance, one-third equity, one-third corporate debt and one-third government securities you may be getting about 10.5% and 10.6% returns.

Speaking of recently announced Unified Pension Scheme (UPS) for central government employees beginning from April 1, 2025, Sitharaman said it has best of Old Pension Scheme (OPS) and NPS. It offers an assured pension after retirement; The government employees will receive a guaranteed pension of 50% of the average of the basic pay received by the employee in the last twelve months of his service.

Further, she stated that the UPS scheme also has inflation indexations which is linked with all India consumer price index for industrial workers. The state governments also have an option to adopt UPS as it solves the problem on behalf of the government employees as well as the tax paying public so as not to burden the future generations with a heavy pension bill, she opined.

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