National Pension System(NPS)

NPS has the following feature and benefits:

·         Open to all Indian citizens including NRI's aged between 18-60 yrs.

·         Pension contribution invested by professional PFM's.

·         Lowest Fund Management charges.

·         Regulatory efficiency.

·         Offers/portability - account can be operated from anywhere in the country.

·         After subscribers retire at the age of 60, they may choose to purchase an annuity for an amount 40% or greater than it and withdraw the remaining pension wealth in lump sum.

·         Subscribers have an option of selecting an annuity which will pay pension to them/their nominee.

·         Withdrawable facility under Tier-II Account.

·         No Entry and Exit Loads with Transparent Fee Based System.

NPS is designed for

1.       The Central Government Employees The Central Government had introduced the New Pension System (NPS) with effect from January 1, 2004 (except for armed forces). NPS has been made mandatory for new entrant in government job sector.All employees of Central Govt. or autonomous departments ( financed by Central Govt.) who have joined on or after January 1, 2004 will be covered by new pension scheme. These employees are not permitted to contribute in General Provident Fund (GPF). Monthly contribution (10% of basic +DA+DP) from the salary of the employee will be transferred to this account from the next month from joining Govt. services. This amount will be matched equally by the Govt. and contributed. As per the present guidelines of Pension Fund Regulatory and Development Authority(PFRDA), contribution towards pension will be invested in the default schemes of three Pension Fund Managers (PFMs), viz, LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited in a predefined proportion, which is mentioned in the Statement of Transaction. Each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity linked mutual funds. Hence, the employees of Central Government and Central Autonomous Bodies need not mention the details of the schemes while filling up the application form.

2.       The State Government Employees The Central Government had introduced the New Pension System (NPS) with effect from January 01, 2004 (except for armed forces). Pension Fund Regulatory and Development Authority (PFRDA), the regulatory body for NPS, finalised the architecture and appointed NSDL as Central Record keeping Agency (CRA) and other entities for New Pension System. Subsequently, various State Governments adopted this architecture and implemented NPS with effect from different dates.

In NPS, a government employee contributes towards pension from monthly salary along with matching contribution from the employer. The funds are then invested in earmarked investment schemes through Pension Fund Managers.

As per the present guidelines of Pension Fund Regulatory and Development Authority(PFRDA), contribution towards pension will be invested in the default schemes for State Government of three Pension Fund Managers (PFMs), viz, LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited. The proportion in which contributions are allocated among these three PFMs is decided by each of the state government, which in mentioned in the Statement of Transaction. Each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity related instruments. Hence, in the application form for PRAN, the employees of State Government and State Autonomous Bodies need not mention the details of the schemes.

3.       Corporate Sector Employees A corporate can either define the scheme for all their subscriber or can allow all the subscriber to select their own scheme. If the corporate defines the scheme, then they can have two options. In option 1, the can go for the three PFMs, viz. SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited, where allocation is done in a defined proportion and each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity related instruments. In option 2, the corporate can also choose one out of six Pension Fund Managers(PFMs) and also the percentage in which the selected PFM will invest the funds.

The six PFMs are ICICI Prudential Pension Funds Management Company Limited, IDFC Pension Fund Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, SBI Pension Funds Private Limited, UTI Retirement Solutions Limited.

In the Banking Industry In terms of Bank Wage Settlement dated 27.04.2010 the employees who join the services of Banks on or after 01.04.2010; and they shall be covered by a Defined Contributory Pension Scheme, which shall be governed by the provision of the Contributory Pension Scheme introduced for employees of the Central Government w.e.f. 01.01.2004, and as modified from time to time.

More Indian PSU are joining to provide NPS to their employees.

4.       Individuals - New Pension System (NPS), Regulated By PFRDA, is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India. It has the following broad objectives:
Provide old age income
Reasonable market based returns over the long term
Extending old age security coverage to all citizens
Swavalamban Yojana for All Citizens of India & NPS Lite (For economically disadvantaged sections ) 

To enroll in the NPS & Account Option

·         To enroll in the NPS, the subscribers need to submit the duly filled Registration form (UOS-S1) along with KYC document to the POP SP of their choice.

·         You will be allotted a unique Permanent Retirement Account Number (PRAN). This unique account number will remain the same for the rest of your life. You will be able to use this account and this unique PRAN from any location in India.

·         The New Pension System consists of two types of accounts :

·         Tier-I account: Employer / Employee can contribute for retirement into this non-withdrawal account. Income Tax benefits as per the Income Tax Act, 1961 are available for both employer and employee contributions.
Tier-I charges can be borne either by Corporate or Subscriber, at the discretion of Corporate

·         Tier-II account: This is a voluntary savings facility, where the subscriber can avail Fund Management facility at very low costs. Subscriber will be free to withdraw savings from this account whenever they wish.
Tier-II transaction charges are same as Tier-I, however it will be borne by subscriber only.

·         Tier II accumulations can be switched to Tier I account but not vice versa

Key features of Tier-II account

A.      No additional CRA charges will be levied for account opening and annual maintenance in respect of Tier II. However, CRA will charge separately for each transaction in Tier II, the charges being identical to the transaction charge structure in Tier I.

B.       There will be no limits on the number of withdrawals from Tier II account.

C.      There will be facility for separate nomination and scheme preference in Tier II.

D.      The subscriber would have the same choice of PFMs and schemes as in the case of Tier I account in the unorganized sector.

E.        Contributions can be made through any POP/POP-SP.

F.        There will be facility of one-way transfer of savings from Tier II to Tier I but funds cannot be transferred from Tier I to Tier II.

G.     Bank details will be mandatory for opening a Tier II account.

H.       No separate KYC for opening Tier II account will be required; the only requirement is a pre-existing Tier I account

1.       Penalty of Rs. 100/- to be levied on the subscriber for not maintaining the minimum account balance and/or not making the minimum number of contributions.

NPS for Corporates

Equal contributions by employer and employee.
Unequal contribution by the employer and the employee.
Contribution from either the employer or the employee.

Minimum Contributions (For Tier-I) Minimum amount per contribution - Rs 500 Minimum contribution per year - Rs 6,000. Minimum number of contributions -01 per year

Minimum Contributions (For Tier-II) Minimum amount per contribution - Rs 250 Minimum balance of Rs. 2000/- at the end of each financial year. Minimum number of contributions -01 per year

Benefits of joining NPS

Voluntary : NPS is open to every Indian citizen. Subscribers can choose the amount which they want to set aside and save every year.

Simple : All one has to do is open an account with any one of the POP and gets a PRAN.

Flexible : Subscribers can choose their own investment option and pension fund and see their money grow.

Portable : Subscribers can operate their account from anywhere in the country, even if they change their city, job or pension fund manager.

Regulated : NPS is regulated by PFRDA, with the transparent investment norms, regular monitoring and performance review of fund management by NPS Trust.

Tax Benefits : It would yield Tax benefits as per the Income Taax Act,1961 as amended from time to time.

NPS : Benefits at low cost

NPS is the lowest cost pension system in India and probably in the world. No where in the world fund management charges are as low as in NPS which have been determined through competitive bidding in a very transparent manner

When can a subscriber withdraw the amount?

On attaining normal Retirement Age (NRA) of 60 years subscribers will be required to Compulsorily annuitize at least 40% of their pension wealth and remaining 60% can be withdrawn as a lump sum or in a phased manner, in case they opt for a phased withdrawal.In case of phased manner subscriber has to withdraw minimum 10% of the pension wealth (lump sum amount). Any amount lying to the credit at the age of 70 should be Compulsorily Compulsorily withdrawn in lump sum.

At any point in time before 60 years of Age : In such case, the subscribers will have to Compulsorily annutize at least 80% of the pension wealth to purchase a life annuity from any IRDA regulated life insurance company. The remaining 20% can be withdrawn as lump-sum.

Death due to any cause :In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum.

NPS is different from others

NPS is a technology driven low-cost, highly transparent system. A very lean team of regulator PFRDA in charges the system in order to keep the regulator cost low.

Selection of Fund Managers, CRA, POPs has been done under highly transparent manner through competitive bidding.

Regulation of Assets Allocation aimed at reducing the risk content in the fund by keeping the equity exposure upto 50%.

Pay out is very flexible with in built provision of lump sum withdrawal, Phased withdrawal and mandatory annuity.

Mandatory Annuitization in order to ensure that retirement savings provide regular flow of post retirement income.

Subscribers can avail the following services from POP/POP-SP :

·         Opening of New Account under NPS.

·         Activation of Tier-II Account if subscriber already has Tier-I account under the scheme.

·         Regular subscriber's contribution.

·         Change in subscriber details.

·         Change of investment scheme/fund manager.

·         Processing of withdrawal request.

·         Processing of request for subscriber shifting.

·         Issuance of printed Account statement.

·         Any other service as may be prescribed by PFRDA.

·         The Subscribers will have complete control on how their contributions and savings in their Permanent Retirement Account (PRA) are managed by selecting a Professional Pension Fund Managers(PFM) from a pool of six PFM's.

Architects of the National Pension System

Point of Presence (POP):

Points of Presence (POPs) are the first points of interaction of the NPS subscriber with the NPS architecture. The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend a number of customer services to NPS subscribers.

Central Record keeping Agency (CRA):

The record keeping, administration and customer service functions for all subscribers of the NPS are being handled by the National Securities Depository Limited (NSDL), which is acting as the Central Record keeper for the NPS.

Pension Funds (PFs)/Pension Fund Managers (PFMs):

The six Pension Funds (PFs) appointed by PFRDA would manage your retirement savings under the NPS.

Trustee Bank:

The Trustee Bank appointed under NPS shall facilitate fund transfers across various entities of the NPS system viz. PFMs, ASPs, Subscribers, etc. Bank of India (BoI) has been appointed as the Trustee Bank.

Annuity Service Providers (ASPs):

ASPs would be responsible for delivering a regular monthly pension to you after your exit from the NPS.

NPS Trust:

A Trust, appointed under the Indian Trusts Act, 1882 is responsible for taking care of the funds under the NPS in the best interests of subscribers.

Pension Fund Regulatory and Development Authority (PFRDA):

An autonomous body set up by the Government of India to develop and regulate the pension market in India. 

NPS Lite - Making pension possible for small investors

Pension Fund Regulatory and Development Authority (PFRDA) has put in place the institutional framework and infrastructure required for administering the National Pension System (NPS) for government employees & all citizens of India. The Unorganized sector model of the NPS, prescribes certain norms related to minimum amount of investment per contribution, during the year and no of contributions per year. The associated charge structure makes such small investments unviable. To facilitate the economically disadvantaged sections of society with limited investment potential also to take advantage of NPS, PFRDA now makes available a unique platform at ultra low cost with optimized features. The individuals would be able to join NPS as groups through aggregators.

NPS Lite model broadly has similar functionalities as the regular NPS model. However, some of the services would not be available at individual subscriber level; instead these services would be provided at Aggregator level and the individual can avail of those features through aggregators

Under NPS Lite, Permanent Retirement Account would be available to subscribers. This will be non-withdrawable account, in which an NPS Lite subscriber shall contribute his/her savings for obtaining an annuity at the time of retirement.

Benefits of joining NPS Lite?

·         It is voluntary - NPS is open to eligible Indian citizens. You can choose the amount you want to set aside and save every year. Investment can be as low as Rs.100 p.m.

·         It is simple - all you have to do is open an account through your Aggregator and get a PRAN.

·         It is uniform -. Single investment plan similar to Central Govt employees.

·         It is portable - You can operate your account from anywhere in the country, even if you change your city, job or your Aggregator

·         It is safe - NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.

·         It is affordable-NPS Lite has features optimized for low investment potential subscribers and is available at ultra low cost.

Swavalamban Scheme

The Scheme and its applicability : Swavalamban Yojana will be applicable to all citizens in the unorganized sector who join the New Pension System (NPS) administered by the Interim Pension Fund Regulatory and Development Authority (PFRDA).

Benefits under the Scheme : Under the scheme, Government will contribute Rs. 1000 per year to each NPS account opened in the year 2010-11 and for the next three years, that is, 2011-12, 2012-13 and 2013-14. The benefit will be available only to persons who join the NPS with a minimum contribution of Rs. 1,000 and maximum contribution of Rs. 12,000 per annum.

Definitions:

Unorganised sector : For the purpose of this scheme, a person will be deemed to belong to the unorganised sector if that person:

·         Is not in regular employment of the Central Or State Government or a autonomous body / public sector undertaking of the Central or state government having employer assisted retirement benefit scheme, or

·         Is not covered by social security scheme under any of the following laws :-
Employees' Provident Fund and Miscellaneous Provisions Act,1952
The Coal Mines Provident Fund and Miscellaneous Provisions Act,1948
The Seamen's Provident Fund Act, 1966
The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955
The Jammu and Kashmir Employees' Provident Fund Act, 1961

Eligibility:

The scheme will be applicable to all persons in the unorganized sector subject to the condition that the benefit of Central Government contribution will be available only to those persons whose contribution to NPS is minimum Rs.1,000 and maximum Rs. 12,000 per annum, for both Tier I and II taken together, provided that the person makes a minimum contribution of Rs. 1000 per annum to his Tier I NPS account.

As a special case and in recognition of their faith in the NPS, all NPS accounts opened in 2009-10 will be entitled to the benefit of Government contribution under this scheme as if they were opened as new accounts in 2010-11 subject to the condition that they fulfill all the eligibility criteria prescribed under these guidelines.