Difference Between National Pension Scheme and Senior Citizens Saving Scheme

The National Pension Scheme is a social security initiative by the Central Government. This pension program is open to employees from the public, private and even the unorganized sectors with the exception of those from the armed forces. The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as monthly pensions post your retirement. 

Senior Citizen Savings Scheme (SCSS) is a preferred fixed income investment option for people above the age of 60 years. The primary objective of this scheme is to help senior citizens ensure a regular flow of income post retirement. Since SCSS is a government-backed investment scheme, it gives guaranteed returns on a quarterly basis. One can avail SCSS through certified banks and post offices in India.

Features And Benefits of National Pension Scheme (NPS)

1. Returns or Interest

A portion of the NPS goes to equities (this may not offer guaranteed returns). However, it offers returns that are much higher than other traditional tax-saving investments like the PPF. This scheme has been in effect for over a decade, and so far has delivered 8% to 10% annualized returns. In NPS you are also allowed the option to change your fund manager if you are not happy with the performance of the fund.

2. Risk Assessment

Currently, there is a 50% cap on equity exposure for the National Pension Scheme. This stabilizes the risk-return equation in the interest of investors, which means the corpus is somewhat safe from the equity market volatility. The earning potential of the NPS is higher as compared to other fixed income schemes. The PFRDA has proposed to increase the cap on equity exposure to 75%.

3. Tax Efficiency

There is a deduction of up to Rs. 1.5 lakhs to be claimed for NPS – for your contribution as well as for the contribution of the employer. – 80CCD(1) covers the self-contribution, which is a part of Section 80C. The maximum deduction one can claim under 80CCD(1) is 10% of the salary, but no more than the said limit. For the self-employed taxpayer, this limit is 20% of the gross income. – You can claim any additional self contribution (up to Rs. 50,000) under section 80CCD(1B). The scheme, therefore, allows a tax deduction of up to Rs. 2 lakh in total.

4. Withdrawal Rules 

Contrary to common belief, you cannot withdraw the entire corpus of the NPS after your retirement. You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm. Of the remaining 60%, 40% is tax-free. The remaining 20% will be subjected to taxation as per your tax slab.

5. Early Withdrawal and Exit rules

As a pension scheme, it is important for you to continue investing until the age of 60. However, if you have been investing for at least 3 years, you may withdraw up to 25% for certain purposes. These include children’s wedding or higher studies, building/buying a house or medical treatment of self/family, among others. You can make a withdrawal for up to 3 times (with a gap of 5 years) in the entire tenure. These restrictions are only imposed on tier I accounts and not on tier II accounts. Scroll down for more details on them.

Benefits of Investing in Senior Citizen Savings Scheme

Given below are the top reasons why SCSS is a preferred investment option among senior citizens:

1. Guaranteed Returns

Since SCSS is a government-backed small savings scheme, it is one of the safest and most reliable investment options for senior citizens.

2. High Interest Rate

Offering interest at the rate of 7.4% per annum, SCSS is among the most beneficial investment options, especially compared to the rather traditional ways of savings such as FD and Savings Account.

3. Tax Benefits

Under section 80C of the Income Tax Act, SCSS is eligible for a tax deduction of up to Rs. 1.5 Lakh per annum.

4. Simple Investment Process

The process of investing in SCSS is quite simple. You can open an SCSS at any authorized bank or any post office in India.

5. Quarterly Interest Payouts

Under SCSS, the interest amount is paid to the account holders quarterly which ensures period payouts adding to your investment. Interest will be credited on the first day of April, July, October, and January every financial year.

6. Maturity Period

A Senior Citizen Savings Scheme matures after 5 years calculated from the date of account opening. However, the account holder does have the option of extending the account for an additional 3 years after it has matured. This extension option is currently available just once and the extension request has to be made within 1 year of maturity of the SCSS account.

Summing it up

Hence, consider investing in NPS if the benefits elaborated above match your risk profile and investment goal. However, if you are open to more equity exposure, there are many mutual funds catering to investors from diverse backgrounds available. In case of SCSS, for deceased claims, the nominee or the legal heir will have to fill out a written application in prescribed format along with a Death Certificate to facilitate the closure of the account.

Also read - Everything To Know About Senior Citizens Savings Scheme

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.