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National Pension System (NPS)

Posted in Finance, India, Investment.

PFRDA (Pension Fund Regulatory and Development Authority), India has opened National Pension System (NPS) / New Pension Scheme to all Indian citizens starting today, on 1st May, 2009.

Its a safe, flexible and portable scheme introduced by Indian Government’s cell PFRDA; to replace the existing System of Pension System in the country and to provide income security after retirement.

PFRDA was established by the Government of India to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds.

National Pension System (NPS) Highlights

Any Indian citizen will be able to start a National Pension System account and can start investing any amount up for a pension.

  • Open to all citizens aged between 18-60 years
  • Exit age for national pension system will be 60 years.
  • Attractive investment schemes to choose from
  • Professional record-keeping and fund management
  • Technology driven, Transparent fee based system
  • Withdrawal facility as and when you wish, under Tier II
  • No entry and exit loads
  • Multiple fund managers
  • Multiple investment options
  • Minimum Contribution per installment: Rs 500
  • Minimum Contribution per year: Rs 6000
  • Minimum Contributions per year : 1

Under this scheme, an investor can deposit their contributions in Bank Branches and Post offices all over the country. Unlike EPF (employee provident fund schemes), there will be only one number allotted to each investor, In case of change of job or location of job, it can be easily transferred to another branch. Each Investor will be allotted a unique 16 digit Permanent Retirement Account Number (PRAN) it will valid for life like current PAN number. There will be no need to open a new account every time you change job or location unlike the current EPF (Employee Provident Fund)

In starting, there will be 23 Points of Presence (POP) including PSU banks and post offices, and they will be provide account opening and other transactions facility. Following is the participating POP list: Allahabad Bank, Axis Bank, Bajaj Allianz General Insurance Co, Central Bank of India, Citibank, CAMS (Computer Age Management Services), ICICI Bank, IDBI Bank, IL&FS Securities, Kotak Mahindra Bank, LIC (Life Insurance Corporation of India), Oriental Bank of Commerce, Reliance Capital, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, SBI (State Bank of India), State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, South Indian Bank, Union Bank of India, UTI.

There will be multiple choices of investment and pension fund managers. All records will be kept by Central Record-keeping Agency (CRA). Central authorities and fund manager will be providing performance reports and NAVs (Net Asset value) regularly, so investor can track and invest accordingly. In Starting, NAVs will be declared once every year and switching fund manager will be allowed only once a year.

Currently seven fund managers have been chosen LIC Pension Fund Limited, SBI Pension Funds Private LimitedIDFC Pension Fund Management Company LimitedKotak Mahindra Pension Fund LimitedReliance Capital Pension Fund LimitedUTI Retirement Solutions Limited and ICICI Pension Fund Management Company Limited that will manage investment money for NPS.

Fund Managers will charge very low fund management charges as compared to mutual funds.

Investment Options:

Individual will also have choice to choose from 3 different asset classes: equity (E type), Govt securities(G Type) and Credit Risk-bearing Debt/fixed income based investments (C Type).

Active Choice investment: Investor can mix these three types also as per his choice. Invester actively decide as to how NPS investment is divided into 3 options (E, C and G).

Auto Choice investment: Another option will be Auto Choice life cycle fund and the investment allocation will be done based of investor’s age. In this scheme, equity portion (Asset class E) will be 50 per cent till age 35 after which it will reduce 2 per cent per year until it becomes 10% by age 55. Credit risk portion (Asset class C) will be 30 per cent till age 35 after which it will reduce 1 per cent per year until it becomes 10% by age 55.

Investor will have option of investing monthly/quarterly, but minimum 4 investments in a year will be compulsory.

As per the notification by PFRDA, Currently only half of investment can go into equities, even if investor chooses the equities type funds. This limit will only be reviewed after a year. Deepak Parekh had suggested PFRDA to allow public to invest all saving in equities but board was not ready to do that.

There will be regular account statements and information desks to keep information transparent.

Govt has extended Swavalamban initiative under which it will contribute 1,000 Rs per year (for a period of four years) to every national pension system (NPS) account opened this year with at least a matching contribution from the subscriber.

How to make investment in NPS

Biggest problem is investment is that, a person has to visit personally to POP office every-time he/she need to make contribution.   There has been some respite to investors as some of the POPs have started taking deposits online.

India’s largest bank State Bank of India has started taking NPS contribution online through the onlineSBI login account. If you have internet banking of SBI, you can make payment to NPS online. You can check NPS contribution section under Payments/Transfers tab after login.

If you have NPS account opened with ICICI and you also have bank account with ICICI, you can also transfer amount online to NPS account. You need to add NPS account as biller in online ICICI account. You can go to ‘Bill Pay’ section and add a biller under Pension category. Once biller is added you can make payment to this account.  The facility for online contribution payment towards national pension system (NPS) is allowed only for NPS accounts opened through ICICI Bank. Your registration for NPS contribution will be cancelled if the NPS account has not been opened through ICICI Bank. Any payments made towards such account will be reversed within three working days. Please make contribution towards the above NPS account only after you have received confirmation for registration into the mail box of your Internet Banking account.

NPS account holders can also invest through SIP or in lump-sum from their ICICI securities account (demat and online share trading account). But as this account is held by limited Indians, its of not much help.

CAMS service for online NPS payment has not started yet and page on their site shows under construction.For Govt Employees:

All new government employees (central and state) will no longer have GPF accounts and NPS account will be mandatory for them. So all who have joined government services after 1st Jan, 2004, will have NPS account.
NPS will work on defined contribution basis and will have two parts – Part I and Part II.

Tier IMandatory non-with-drawable Pension Account – Monthly contribution will be 10 percent of basic salary and equal amount will be deposited by Govt. This amount will be kept in a non withdrawal Pension Tier I account.
Tier IIVoluntary with-drawable Savings Account – It will be voluntary tier-II with-drawable account from which individual can withdraw money anytime without giving reason. There will not be any contribution from Govt. side in this account.

Govt Employee can exit after age of 60 years from Tier I Scheme and it will be mandatory for him to invest 40% of pension amount to purchase an annuity through a Life Insurance Company, It will provide pension for the life time. In case of employee wants to leave NPS before age of 60, the mandatory annuity will be 80 per cent of the pension amount.

Charges:

For account opening and issuance of PRAN : 50 Rupees
Annual maintenance charge: 350 280 Rupees per year
Initial subscriber registration charge: 100 Rupees
Transaction charges and contribution upload– 0.25% of the amount, subscribed by the NPS subscriber, subject to minimum of Rs.20 and a maximum of Rs. 25000.
Fund management charge: 0.0009% per year on the fund value.
Fund switch charges: 20 Rupees.
Any other transaction not involving a contribution from subscriber – Rs 20

As of now, this charge appears to be high. Considering 12 transaction a year (one every month), investor has to pay 470 Rs a year. That’s on higher side. These charges will reduce in coming years, as number of subscriber increases.
PFRDA may ask Government to partly pay the maintenance cost to reduce overall cost for investor.

Income tax treatment:

The bad part about NPS is that the returns will be fully taxable not like EPF and PPF. It will come under exempt-exempt-taxed (EET) regime, the amount would be taxed at the time of withdrawal. NPS will not attract any Security Transaction Tax (STT) and Dividend Distribution Tax (DDT).
However PFRDA has suggested government to exempt scheme from tax, but that decision will only be taken by new government.

Update: As per new notification by Finance ministry, under Direct Tax Code (DTC), NPS will also come under EEE and withdrawal will also be non-taxable from 2011. So national pension system could become the best long-term savings option.

From April 1, 2011. Employer contribution from employer towards NPS will not be included in the Section 80 C deductions (Like what happens in case EPF currently). So if employer contributes 50,000 to your account and you contributes same amount, Your 50000 will be available for exemption under 80-C and there won’t be any income tax on rest 50,000 deposited by employer. This increasing your overall deduction claim.

Where to apply for NPS

NPS is available at selected Service Provider (SP) branches of various Point(s) of Presence, Click on link for each POP for branches address. You may also view list by state-city on this link: POP/POP-SP location details.

For more information, application form & offer document, walk into your nearest Service Provider branch of the above-mentioned Point(s) of Presence.

Application Forms

  1.   NPS (New Pension Scheme/System) - Application Form (456.0 KiB, 11,482 hits)

  2.   New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 9,298 hits)

  3.   New Pension System (NPS) - Welcome Kit (1.2 MiB, 4,794 hits)

  4.   NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 6,403 hits)

  5.   New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 4,599 hits)

  6.   NPS Scheme Preference Change/Switch form (26.9 KiB, 763 hits)

  7.   Swavalamban Yojana Declaration Form (139.7 KiB, 906 hits)

  8.   Subscriber request form to change Point of Presence (POP) (63.3 KiB, 715 hits)

  9.   Subscriber request form to change POP-SP (16.4 KiB, 662 hits)

  10.   UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 690 hits)

  11.   Request form for change in signature and/or change in photograph (12.8 KiB, 583 hits)

  12.   Request For Change/Correction in Subscriber Master details And/Or Reissue of I-Pin/T-Pin/PRAN Card (402.9 KiB, 849 hits)

  13.   Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 836 hits)

  14.   S1 - Subscriber Registration form to get PRAN (61.3 KiB, 906 hits)

Launch Notification:

national pension system NPS


610 Responses

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  1. Preeti Arora says

    Sir, i am Central Govt Employee since 2009 i am under NPS. i want to knw, whether i need to change Bank details in PRAN account if i had resigned from my previous job and joined in some another department where new salary account was opened.

  2. b.k.patel says

    need to publicity for NPS this best schme for our country for after 60 age Person get pension like in usa other development country

  3. Sandhya says

    Hello, Sir. Every month 10% of my (Basic Pay + DA) is being deducted towards NPS from my salary. But I want to increase my savings. Is there any option to deposit an amount into my PRAN account other than salary deduction.

    • Pankaj Batra says

      @Sandhya
      You can directly deposit to your NPS account by filling contribution form at bank.
      Also, if you have online SBI account, you can also deposit amount to NPS account using just PRAN.

      • Sandhya says

        Thank You, Sir.

      • Varun says

        @Pankaj : can we increase our TIER-I contribution? Is it possible?

        • Pankaj Batra says

          @Varun
          You can contribute any amount you want using PRAN number.

          • varun says

            @pankaj: Sorry to ask you again, can i contribute to my TIER-I where 10% of my basic will be deducted and same amount will be invested by Government?

            • Pankaj Batra says

              @Varun
              If you are not a Govt employee and NPS is not linked to your govt salary account, govt won’t contribute to your account.

              • Varun says

                I am government employee, my NPS is linked to my salary account, my 10% of basic is deducting from the salary every month, now can i make it 15% of deduction from my salary for the TIER-I contribution?

                • Pankaj Batra says

                  @Varun
                  I think, like You can deposit extra amount in EPF through VPF, you should be able to ask your employer to deduct extra employee contribution into NPS.
                  Please note that employer contribution would be limited to 10%.

                  • varun says

                    Thanks for the reply Pankaj.. Enquired in the office.. But they are saying they cant increase the contribution. So i aksed here.. If there is any option to do so, please let me know. Thanks in advance

                    • Pankaj Batra says

                      @Varun
                      I researched further and could not find any mention of it in official document of NPS.
                      So, you don’t have any option but to go with what your employer says.
                      But, you can contribute the extra amount directly yourself. If you have PRAN details, you can contribute yourself from any POP branch, or from online SBI account.

  4. vaskar says

    Sir i was in sbi but now i m in iob so how i can trnsfer my pran account from sbi to iob

  5. Vinayagam says

    Dear Sir,

    I have added NPS as biller in my ICICI account. Understand that all my online transfer will go to Tier 1 account but to Tier 2. If I want to make payment to Tier 2 I was asked to drop a cheque. is it true? Kindly clarify sir. Thanks Vinay

    • Pankaj Batra says

      @Vinayagam
      As ICICI does not ask which Tier you wish to invest into while biller payment, I am assuming by default it would be Tier 1 only.
      They don’t have any option for Tier 2 online contribution as of now.

      • Vinayagam says

        Thanks for the clarification sir..

  6. vishal says

    Hello pankaj sir my employer deducted the previous year contribution in current year I.e after one year of my service but not depositing in my. NPS account. Is there any document available which should show they are wrong …. Also i forget to tell you that in my salary. Slip. They are showing that I have received full salary

    • Pankaj Batra says

      @Vishal
      You can see NPS account statement using your PRAN to know how much contributions have been made to your account.

  7. poonam goel says

    Mera a/c h govt bnk may mjhey kya karna parrey ga nps account kholney gye..

    • Pankaj Batra says

      @Poonam
      You need to ask your bank branch if they have NPS facility or not.

  8. Siddharth says

    Sir, How can I track performance of NPS Tire I & II fund quarterly/monthly interval ?

  9. rohit says

    sir i was in sbi..now i hav to join iob..but sbi sbi is not giving me relieving letter..i have nps account..i want to ask if iob will be able to know about my previous job and nps account if i apply for another one..secondly i also want to know that can two nps account be opened with two diff pan of same person

    • Pankaj Batra says

      @Rohit
      One person should not hold more than one NPS account. You should use existing account only.

  10. Varun says

    @Hi Pankaj,

    I want to change my Address. Which form should I use for that

  11. Sankar says

    I am a business man, can i open a nps ac. If any agent or relationship manager please send me details

  12. Sankar says

    Thanks fr ur kind information sir, my next quarry NSDL opened any membership scheme rs. 500 for PRAN card, some one comes to my house & explain about NSDL multi level member ship plan. Those scheme really authorized or unauthorized? Pls sir replay me as soon as possible.

    • Pankaj Batra says

      @Sankar
      There is only Rs 50 charge for PRAN card issuance.
      Apart from that Initial subscriber registration charge is 100 Rupees. Also Rs 500 is required minimum as initial contribution.
      Not sure why Rs 500 was mentioned.
      We have not heard about any multi level membership plan. This should be some fraud going on.

  13. prem says

    sir i was acentral govt. emploee from 2010 to2013. i had aPRAN there. now i regined that and joined a service in state govt. rajasthan. would i have to apply for a new PRAN. If not than how i inform cra about my new employer. to use same PRAN no.

  14. Harikumar says

    Hi Mr. Batra,
    Your site is very informative. I was earlier with TechMahindra where I enrolled in NPS in Apr 2013 using Kotak as Fund Manager. Have not made subsequent payments. I have the following questions regarding NPS, kindly clarify -

    1. Does every company contribute towards NPS alongside employee’s contribution?
    2. I joined another company 8months ago. I did not make any payments towards the NPS account until now after initial subscription into scheme. How can I now restart my contribution every month?
    3. I moved to a different city. How do I change my address and phone number details to be registered with CRA and PRAN account?
    4. Is there a merit in changing the Fund Managers details? And how do we change it? If we did, do we need to issue instructions to CRA / PRAN?

  15. altaf ahmad says

    sir I submit S2 form before 10 days for reissue of I pin & t pin after 10 days I have not received

  16. vikash says

    Sir,
    I am presently working with Allahabad bank. I have PRAN card.I am appearing in SSC exam. My employer is not giving me NOC, trying to keep me with them. If I will be selected in ssc then is there any problem related to my PRAN. Because I have not shown that I am already a employe if a PSU.

    • Pankaj Batra says

      @Vikash
      PRAN is issued only once for a person. So in case you join any other employer, you should quote same PRAN for NPS deposits.
      You can say that you opened this account yourself as individual.

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