New Delhi: Union Minister for Finance and Corporate Affairs Nirmala Sitharama, launched the National Pension System Vatsalya (NPS Vatsalya), a pension scheme designed for minors, on Wednesday.
Announced in the Union Budget 2024-25 on July 23, 2024, the scheme is an extension of the existing NPS to include children.
Sitharaman also introduced an online platform for subscribing to NPS Vatsalya and unveiled the scheme’s brochure. She highlighted that the initiative is based on the principle of intergenerational equity, providing financial cover for both older and younger family members.
In the last decade, NPS has grown to 1.86 crore subscribers with an Asset Under Management (AUM) of Rs13 lakh crore. Children enrolled in NPS Vatsalya will receive Permanent Retirement Account Number (PRAN) cards as part of their enrolment.
The Features
1. All minor citizens (under 18 years) are eligible.
2. The account is opened in the minor’s name and managed by a parent or guardian, with the minor as the beneficiary.
3. The scheme can be accessed through Points of Presence regulated by PFRDA, including major banks, India Post, Pension Funds, and online platforms like e-NPS.
4. A minimum contribution of Rs 1,000 per year is required, with no upper limit on contributions.
5. PFRDA offers multiple investment options, allowing subscribers to allocate funds to government securities, corporate debt, and equity in varying proportions based on risk tolerance and return preferences.
6. Upon reaching adulthood, the account can be easily converted into a standard NPS account.
Investment Options
Default Choice: Moderate Life Cycle Fund (LC-50) with 50% equity allocation.
Auto Choice: The guardian can select from the following Life Cycle Funds based on their risk appetite:
Aggressive (LC-75): 75% equity
Moderate (LC-50): 50% equity
Conservative (LC-25): 25% equity
Active Choice: The guardian can manually allocate funds with the following limits:
Equity: up to 75%
Corporate Debt: up to 100%
Government Securities: up to 100%
Alternate Assets: up to 5%
NPS Vatsalya: How to Open an Account
NPS for minors can be opened through Points of Presence (POPs) registered with PFRDA, either online or in-person. These include major banks, India Post, Pension Funds, etc. (A full list of POPs is available on the PFRDA website: www.pfrda.org.in).
Alternatively, accounts can be opened via the online platform, eNPS, offered by NPS Trust.
Documents Required
1. Proof of the minor’s date of birth (such as a birth certificate, school leaving certificate, matriculation certificate, PAN card, or passport).
2. KYC for the guardian, including proof of identity and address (such as Aadhaar card, driving license, passport, voter ID card, NREGA job card, or National Population Register document).
3, For guardians who are NRIs, an NRE/NRO bank account (either solo or joint) in the minor’s name.
Exit/Withdrawal and Death Before 18 Years of Age
4, Partial withdrawals of up to 25% of contributions are permitted on a declaration basis after a 3-year lock-in period. These withdrawals can be made for education, specified illness, or disability, up to a maximum of three times until the subscriber turns 18.
Exit Upon Attainment Of 18 Years
If the accumulated corpus is Rs 2.5 lakh or more, at least 80% of the balance must be used to purchase an annuity, with the remaining balance available for lump-sum withdrawal.
If the accumulated corpus is less than Rs 2.5 lakh, the entire balance can be withdrawn as a lump sum.
In Case of Death
Death of the Minor: The entire accumulated corpus will be returned to the guardian.
Death of the Guardian: A new guardian must be registered through fresh KYC. If both parents pass away, the legally appointed guardian can maintain the account with or without contributions. Upon reaching 18, the subscriber can choose to continue or exit the scheme.
Upon Attainment Of Age 18 Years
Children under 18 can open an NPS Vatsalya account, which will automatically convert to a regular NPS account upon turning 18.
1. Pension benefits will begin only after reaching the age of 60.
2. The account will seamlessly transition to NPS Tier-I (All Citizen).
3. Fresh KYC must be completed within three months after turning 18.
4. After conversion, the features, benefits, and exit norms of the NPS Tier-I All Citizen Model will apply.
NPS Vatsalya offers a structured pathway for minors to build a pension corpus from an early age, with a smooth transition to a regular NPS account upon reaching adulthood. By providing flexible investment choices and enabling partial withdrawals for specific needs, the scheme ensures that children can benefit from financial security and investment growth. Upon turning 18, the account transitions seamlessly into NPS Tier-I, aligning with standard NPS features and exit norms, thereby supporting long-term financial planning and retirement readiness.
