New Pension Scheme announced for Minors, parents and guardians may contribute

A new pension scheme named ‘Vatsalya’ has been proposed for minors by Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman in the Union Budget 2024-25 tabled in Parliament today.

A contributory pension scheme, this will have contribution by parents and guardians. On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.

The Union Minister also announced that the Committee to review the National Pension Scheme NPS has made considerable progress in its work. She expressed satisfaction that the Staff Side of the National Council of the Joint Consultative Machinery for Central Government Employees have taken a constructive approach. “A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens”, the Minister further informed.

Key features:

1. Early Start: Parents can start saving for their child’s retirement as early as infancy.
2. Long-Term Benefits:The power of compounding can significantly enhance returns over a long investment horizon.
3. Account Conversion:Upon reaching adulthood, the child’s account will automatically transition into a regular NPS account.
4. Minimum Investment: Parents can start with a modest monthly contribution of Rs. 500 or an annual contribution of Rs. 6,000.

Who is eligible for NPS Vatsalya?

All parents and guardians, whether Indian citizens, NRIs, or OCIs, are eligible to open an NPS Vatsalya account for their minor children.

What are the benefits?

1. The NPS Vatsalya Scheme will promote savings habits in children because when the children turn 18, the account can be converted to a standard NPS scheme.
2. The NPS scheme offers portability, i.e., it allows a person to change jobs without any impact on the NPS account.
3. The NPS Vatsalya account is a good retirement fund option since contributions to the account begin when the child is a minor. Thus, a huge amount will be accumulated at the time of the child’s retirement. At the time of retirement, one can withdraw 60% of the accumulated amount in the NPS account.

 A part of the corpus can be taken out tax-free upon retirement.