National Pension System
Abut By Author
CA. Gaurav Gupta
 |
Government of India established Pension Fund Regular toryand Development Authority (PFRDA )on 10th October, 2003 to develop and regular expansion sector in the country.
The National Pension System (NPS) was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate Tabatha it of saving for retirement the citizens.
Initially, NPS was introduced for the new government recruits (except armed forces). With effect from 1st May, 2009, NPS has been provided for all citizens of the country including the unorganized sector workers on voluntary basis.
Additionally, to encourage people from the unorganized sector to voluntarily save for their retirement the Central Government launched co-contributory pension scheme, ‘Swavalamban Scheme in the Union Budget of 2010-11. Under Swavalamban Scheme, the government will contri but ease ofRs.1,000 to each eligible NPS subscriber who contri but subminimum of Rs.1,000 and maximum Rs.12,000 perineum. This scheme is presently applicable upto F.Y.2016-17. The swavalamban scheme has been knower placed by Atal Pension Yojana.
NPS offers following important features to help subscriber save for retirement:
- The subscriber will be allotted a unique Permanent Retirement Account Number (PRAN). This unique account number will remain the same for the rest of subscriber’ s life. This unique PRAN can be used from any location in India.
PRAN will provide access to two personal accounts:
- Tier I Account: This is a non-withdraw able account meant for savings for retirement.
- Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefits available on this account.
NPS ARCHITECTURE-
NPS architecture consists of NPS Trust which is entrusted with safeguarding subscribers interests, a Central Record keeping Agency (CRA) which maintains the data and records, Point of Presence (POP) and aggregators as collection and distribution arms, competing pension fund managers for generating and maximizing return son investments of subscribers, custodian to take care of the assets purchased by the Fund managers and Trustee bank to manage the banking operations.
Pension Fund Regulatory and Development Authority (PFRDA) :
Pension Fund Regulatory and Development Authority (PFRDA)-is an autonomous body set up by the Government of India to develop and regulate the pension marketing India.
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. The Pension Fund Regulatory and Development Authority (PFRDA)- has authorized 58 in situation secluding public sector banks, private banks, private financial institutions and the Department of Posts- Points of Presence (POPs) for opening the National Pension System (NPS) accounts of the citizens.
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.
Annuity Service Providers (ASPs):
Annuity Service Providers (ASPs) would be responsible for delivering regular monthly pension to the subscriber after exit from the NPS.
Fund Managers
Fund stage-managed by pr of sectional Fund Managers from Public& Privates Ector with proven track record and as per the PFRDA approved investment guidelines.At present there are 7 pension fund managers managing the pension wealth of subscribers. The yare:
- HDFC Pension Management Co. Ltd.
- ICICIP prudential Pension Fund Management Co. Ltd.
- Kotak Mahindra Pension Fund Ltd.
- LIC Pension Fund Ltd.
- Ltd
- UTIR retirement Solutions .Ltd
- Birla Sun life Pension Management .Ltd
Trustee Bank –
Axis Bank, functions as Trustee Bank.
Custodian-
Stock Holding Corporation of India Ltd, functions as custodian for PS.
Who can join NPS?
Central Government Employees
NPS is applicable to all new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004. Another government employee who is not mandatorily covered under NPS can also subscribe to NPS under” All Citizen Model” through Point of Presence-Service Provider (POP-SP).
State Government Employees
NPS is applicable to all the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments. Anyother government employee who is not mandatorily covered under NPS can also subscribe to NPS under “All Citizen Model “through Point of Presence-Service Provider (POP-SP).
Corporate
A Corporate would have the flexibility to decide investment choice either at subscriber level orat the corporate level centrally for all its under lying subscribers. The corporate or the subscriber can choose any one of Pension Fund Managers (PFMs) available under “All Citizen Model” and also the percent again which the funds are all located in various asset classes.
Individual
All citizens of India between the age of 18 and 60 years as on the date of submission of his /her application to Point of Presence (POP) / Point of Presence-Service Provider (POP-SP) canjoinNPS.
Unorganized Sector Workers- Swavalamban Yojana
A citizen of India between the age of 18 and 60 year season the date of submission of his/her application, who belongs to the unorganized sector or is not in a regular employment of the Central or a state government, or an autonomous body/ public sector undertaking of theCentral or state government, can open NPS -Swavalamban account. The subscriber of NPS -Swavalamban account should not be covered under social security scheme like 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 and The Jammu and Kashmir Employees’ Provident Fund Act, 1961.
BENEFITSOFNPS-
Some of the benefits of the National Pension System(NPS)are:
- Dual benefit of Low Cost and Power of compounding – The account maintenancecosts under NPS are the lowest as compared to similar pension products available inIndia, like retirement plans offered by Insurance companies and mutual funds. While saving for a long-term goal such as retirement, the cost matters a lot. Over 35-40years, the charges can shave off a significant amount from the corpus.
Till the retirement pension wealth accumulation grows over a period of time with acompounding effect. The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
- A flexible investment option: Subscribers have control on the choice of investment made (Active or Auto Choice ) and the Pension funds woman ages the investments. Subscriber scans witch from one Pension fund to another, one investment option to another, subject to certain regulatory restrictions.
Three Life Cycle funds are available under this Auto Choice:
- LC75 – Aggressive Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 75% till age 35 and gradually reduces as per the age of the subscriber.
- LC50- Moderate Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 50% till age 35 and gradually reduces as per the age of the subscriber.
- LC 25- Conservative life cycle fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 25% till age 35 and gradually reduces as per the age of the subscriber.
The default auto choice if the subscriber is not choosing any of the above option is Moderate life Cycle Fund.
·Tax benefit to employee:
Individuals who are employed and contributing to NPS would enjoy tax benefit son their own contributions as well as their employer’s contribution as under: –
- Employee’s own contribution– Eligible for tax deduction up to 10% of Salary(Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1.50 lacsunder Sec80CCE.
- Employer’scontribution – The employee is eligible for tax deduction up to 10%of Salary (Basic + DA) contributed by employer under Sec 80 CCD(2) over and above the limit of Rs.1.50 laces provided under Sec80CCE.
(iii) Tax benefit for self-employed:
Eligible for tax deduction upto20%of gross income under Sec80CCD (1) with in the overall ceiling o fRs.1.50 lacs under Sec80CCE.
Subscriber is allowed deduction in addition to the deduction allowed under Sec.80CCD(1) for additional contribution in his NPS account subject to maximum investment of Rs.50,000/-under sec.80CCD1 (B)
Tax benefits would be applicable as per the Income Tax Act, 1961 as amended
From time to time.
- A safe retirement fund: Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority (PFRDA).
- LowCost -NPS is considered to be the world’s lowest cost pension scheme.
Administrative charges and fund management fee are also lowest.
- Simple – All applicant has to do is to open an account with any one of the POPs or through NPS and get Permanent Retirement Account Number(PRAN)
- Flexible – Applicant can choose his/her own investment option and Pension Fund or select Auto choice to get better returns.
- Portable – Applicant can operate an account from anywhere in the country and can pay contributions through any of the POP-SPs irrespective of the POP-SP branch with whom the applicant is registered, even if he/she changes his/her city, job etc and also make contribution through NPS. The account can be shifted to any other sector like Government Sector, Corporate Model in case the subscriber gets the employment
- Prudentially Regulated– Transparent investment norms, regular monitoring and performance review of funds by NPS Trust.
All Citizen Model of NPS-
Eligibility
An individual fulfilling the following eligibility criteria can voluntarily join in NPS:-
- Should be an Indian Citizen( resident or non-resident) or an Overseas Citizen of India(OCI)
- Should be aged between 18-65 years
- Compliance of Know Your Customer (KYC)norms detailed in the Application Form
Hindu Undivided Families (HUFs) and Persons of Indian Origin ( PIOs) are not eligible for subscribing to NPS.
NPS is an Individual Pension Account and cannot be opened on behalf of a third person. The applicant should be legally competent to execute a contract as per the Indian Contract Act.
Enrollment
An NPS account can be opened through
- Points of Presence (PoP) registered with PFRDA in Online or Physical mode
-https://www.pfrda.org.in/index1.cshtml?lsid=205
Point of Presence (PoPs) is the distribution channel and the first point of contact for applicants and subscribers. PoPs are mandated to provide services related to Subscriber Registration(Collection of forms and KYC verification), receiving /uploading contributions, processing subscriber requests for updating of account details, exercising choices, with drawls, grievances resolution etc.
- Online platform (eNPS) of NPS Trust –http://www.npstrust.org.in/content/open-your-nps-account-online
For generation of an Individual Pension Account under NPS, an applicant is required to submit the completed Subscriber Registration Form (CSRF/NRSF/Online data fields) along with the following documents through physical or online mode to the Service Provider (PoP):
For resident Individuals:
- One Recent Photograph
- PAN Card
- Proof of Address
- Proof for the Bank Account
For NRI sand OCIs
| Non-resident Individual (NRI) | Overseas Citizen of India(OCI) |
| One Recent Photograph | One Recent Photograph |
| PAN Card | PANC ard |
| Indian Passport | OCICard |
| Proof of address-India | Proof of address –foreign country |
| Pro off or the Bank Account (NRE/NRO) | Pro off or the Bank Account (NRE/NRO) |
Types of Accounts
Under NPS account there are two types of accounts –TierI & Tier II.
Tier- Iis the Individual Pension Account, which is the default pension account having all the tax incentives under Income Tax Act.
Tier-II is an optional investment account available to a subscriber having an active Tier-I account. This account has no withdrawal restrictions and tax benefits. Tier-II is not a Pension Account.
| Tier–I | Tier– II |
| Individual Pension Account | Optional Account–Requireanactive Tier-I |
| Withdrawal as per rules/regulations only | Unrestricted withdrawals |
| Min. Contribution to open Rs.500 | Min. Contribution to open Rs.1000 |
| Min. Contribution per year Rs.1000 | Min. Contribution Rs. 250 |
| Tax benefits are available | No tax benefits on contribution/gains |
NRI/Achieving Tier-I account are restricted to activate Tier-II account
Subscriber can select different Pension Fund and Investment Option for his/her NPS Tier I andTierII accounts.
Contribution
A subscriber can make any number of contributions to his/her Tier-Ior Tier-II account without any upper limit of amount through any of the following modes:
1. Physical mode–by visiting any of the registered service providers (PoP) and depositing cheque/ cash along with the NPS contribution slip.
2. Online mode-
(a) Web-based [(I )login to Pension Account (ii)online facility provided by PoPs (iii) eNPS plat form of NPS Trust]
(b) NPS Mobile Application login
The contributions made by the subscriber will get invested as per the subscriber choice (Pension Fund and Asset al location) exercised and recorded with CRA.
Investment choices
The NPS contributions made by a subscriber will get invested as per the subscriber choices
(Pension Fund and Asset all location) exercised and recorded with CRA.
The following choices are available to the subscribers:
(A) Selection of Pension Funds:
The subscriber can choose any one of the Pension Funds registered with PFRDA .To see the list of Pension Funds registered with PFRDA please clickhere.
(B) Investment Choice for Asset Allocation:
The contributions of subscribers are invested by the Pension Funds (chosen by subscriber) in compliance of the investment guidelines prescribed by PFRDA for each Asset Classi.e. Equity, Corporate Bonds, Government Securities and Alternate Assets.
An NPS subscriber has the freedom to al locate his/her contributions to different Asset Classes through Active Choice or Auto Choice
Active Choice:Subscriber actively decides on the allocation of funds across: Asset class E or Equity upto a maximum of 75%
Asset Class C or Corporate Bonds upto a maximum of 100%
Asset Class G or Government Securities upto a maximum of 100% Asset Class A or Alternate Assets upto a maximum of 5%
Or
Auto Choice: The funds of the subscriber gets invested across three asset classes (Equity,Corporate Bonds & Government Securities) in pre-determined proportion as per the age ofsubscriber. The initial allocation across three asset classes remains constant till 35 years ofage andthereafterallocationtoequity gradually declines everyyear.
Following are the 03 Life Cycle Funds:
- Conservative Life Cycle Fund(LC25)
- Moderate Life Cycle Fund (LC50)–Default
- Aggressive Life Cycle Fund (LC75)
|
Age |
Aggressive Life Cycle
Fund (LC-75) |
Moderate Life Cycle
Fund (LC-50) |
Conservative Life Cycle
Fund (LC-25) |
||||||
| Asset Class(%) | Asset Class(%) | Asset Class(%) | |||||||
| E | C | G | E | C | G | E | C | G | |
| Upto35
years |
75 | 10 | 15 | 50 | 30 | 20 | 25 | 45 | 30 |
| Upto36
years |
71 | 11 | 18 | 48 | 29 | 23 | 24 | 43 | 33 |
| Upto37
years |
67 | 12 | 21 | 46 | 28 | 26 | 23 | 41 | 36 |
| Upto38
years |
63 | 13 | 24 | 44 | 27 | 29 | 22 | 39 | 39 |
| Upto39
years |
59 | 14 | 27 | 42 | 26 | 32 | 21 | 37 | 42 |
| Upto40
years |
55 | 15 | 30 | 40 | 25 | 35 | 20 | 35 | 45 |
| Upto41
years |
51 | 16 | 33 | 38 | 24 | 38 | 19 | 33 | 48 |
| Upto42
years |
47 | 17 | 36 | 36 | 23 | 41 | 18 | 31 | 51 |
| Upto43
years |
43 | 18 | 39 | 34 | 22 | 44 | 17 | 29 | 54 |
| Upto44
years |
39 | 19 | 42 | 32 | 21 | 47 | 16 | 27 | 57 |
| Upto45
years |
35 | 20 | 45 | 30 | 20 | 50 | 15 | 25 | 60 |
| Upto46
years |
32 | 20 | 48 | 28 | 19 | 53 | 14 | 23 | 63 |
| Upto47
years |
29 | 20 | 51 | 26 | 18 | 56 | 13 | 21 | 66 |
| Upto48
years |
26 | 20 | 54 | 24 | 17 | 59 | 12 | 19 | 69 |
| Upto49
years |
23 | 20 | 57 | 22 | 16 | 62 | 11 | 17 | 72 |
| Upto50
years |
20 | 20 | 60 | 20 | 15 | 65 | 10 | 15 | 75 |
| Upto51
years |
19 | 18 | 63 | 18 | 14 | 68 | 9 | 13 | 78 |
| Upto52
years |
18 | 16 | 66 | 16 | 13 | 71 | 8 | 11 | 81 |
| Upto53
years |
17 | 14 | 69 | 14 | 12 | 74 | 7 | 9 | 84 |
| Upto54
years |
16 | 12 | 72 | 12 | 11 | 77 | 6 | 7 | 87 |
| Upto55
years |
15 | 10 | 75 | 10 | 10 | 80 | 5 | 5 | 90 |
For detailed investment guide lines refer to the Circular Section of PFRDA website.
Withdrawal / Exit
Withdrawal / Exit from NPS Tier-I Account is subject to the following conditions:
- Partial Withdrawal – after completion of 3 years subscriber can withdraw 25% of his/her own contributions for specific reasons viz illness, disability, education or marriage of children, purchasing property, starting a new venture. A subscriber can partially withdraw up to a maximum of 3 times during his/her entire tenure in NPS.
- Premature Withdrawal-after completion of 10 years or be for in completion of 03 years (if subscriber has joined NPS after 60 years of age), subscriber can withdraw maximum 20% of the corpus as lump sum and minimum 80% of the corpus has to be utilized for purchasing an annuity plan for receiving the pension. If the accumulated corpus is less than Rs 1 lakh, the entire corpus is paid a slump sum to the subscriber.
- Normal Withdrawal – on completion of 60 years of age (if subscriber has joined NPS before 60 years of age) or after completion of 03 years (if subscriber has joined NPS after 60 years of age), subscriber can withdraw maximum 60% of the corpus a slump sum and minimum 40% of the corpus has to be utilized for purchasing an annuity plan
- for receiving the pension. If the accumulated corpus is less than Rs 2 lakhs, the entire corpus is paid a slump sum to the subscriber.
Subscriber also has the option to:
- Continue in NPS till the age of 70 years or exit any time after such continuance before 70years.
- While exiting from NPS ,subscriber can;
- Defer receiving the lump sum(60%corpus )till the age of 70 years or withdraw the same in installment still 70 years
- Defer Annuity purchase (40%corpus) for a maximum period of 3 years.
In case of unfortunate event of death of a subscriber, the nominee/legal heir can withdraw the entire accumulated corpus. The nominee / family members of the deceased subscriber can also purchase annuity, if they so desire.
Withdrawal/ Exit from NPS Tier-II Account is unrestricted and will be compulsorily closed up on closure of Tier-I Account.
PRAN (Permanent Retirement Account No)-
The PRAN or Permanent Retirement Account Number is a unique 12 digit number that identifies those individuals who have registered themselves under the National Pension Scheme (NPS). After al location of PRAN, the NPS subscribers have an option of receiving a physical copy of their PRAN on a PRAN card. Since the PRAN card serves as the unique dent iffier for an NPS subscriber, a PRAN once all coated cannot be changed for the subscriber throughout his/her life.
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