Govt launches NPS Vatsalya: Here’s how the new pension plan for kids works

Union Budget 2024: Finance Minister Nirmala Sitharaman introduced the NPS Vatsalya scheme as part of the 2024 Union Budget. This plan allows parents and guardians to open National Pension System (NPS) accounts for their minor children, boosting early savings and investment habits.

What is NPS Vatsalya?

NPS Vatsalya is a specialised variant of the existing National Pension System (NPS), designed with young individuals in mind. This new initiative enables parents or guardians to start contributing to an NPS account on behalf of their minor children.

The scheme is set to commence shortly and brings a feature to the table: once the child turns 18, the account can seamlessly transition into a regular NPS plan.

“The NPS Vatsalya scheme will empower parents to make contributions towards their children’s retirement savings from an early age,” Finance Minister Sitharaman stated during her Budget 2024 speech.

“On attaining the age of majority, the account can be converted effortlessly into a standard NPS account,” Sitharaman added.

Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company, lauded the NPS Vatsalya initiative, highlighting its potential to instill long-term investment habits in the young.

“With the possibility of a newborn having up to 60 years of investment in NPS, this initiative sets the stage for a secure financial future,” Shah remarked. He expressed confidence in the budget, praising its strategic balance between fiscal prudence, investment, and sustainable development.

Flexibility and long-term benefits

One of the most attractive aspects of the NPS Vatsalya scheme is its flexibility. Parents have the option to convert the minor’s account into a regular NPS account once the child reaches adulthood. This transition ensures that the savings continue to grow and serve their intended purpose of long-term retirement planning.

“NPS Vatsalya allows for a smooth shift from a minor’s account to an adult account,” added Sitharaman. “This is designed to promote sustained investment and financial discipline from a young age.”

What is the National Pension System?

The National Pension System is a government-run investment scheme aimed at providing retirement income. It offers two types of accounts: Tier 1, which is focused on retirement savings, and Tier 2, a voluntary savings account. Both accounts are overseen by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring robust investment options for subscribers.

The announcement of NPS Vatsalya is expected to be a key topic of discussion as the Budget Session of Parliament progresses. The session, which began on July 22, will see 16 sittings over 22 days, culminating on August 12. As the budget unfolds, stakeholders across sectors are keenly watching for further details and implications of this pioneering initiative.