New Pension Scheme (NPS)

PFRDA (Pension Fund Regulatory and Development Authority), India has opened New Pension Scheme (NPS) 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.

Highlights

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

• Open to all citizens aged between 18-60 years
• Exit age for new pension scheme 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 : 4
  

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 Pension Account Number (PPAN) 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 six fund managers have been chosen UTI, SBI, ICICI Prudential, Reliance Capital, IDFC and Kotak Mahindra 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).

Investor can mix these three types also as per his choice. Another option will be Active 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 New Pension Scheme (NPS) account opened this year with at least a matching contribution from the subscriber.

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 I – Mandatory 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 II – Voluntary 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 : 50 Rupees
Annual maintenance charge: 350 Rupees per year
Transaction charge: 15 Rupees per transaction
Fund management charge: 0.0009% per year on the fund value.
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 New Pension Scheme could become the best long-term savings option.

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 download full list from here.

• Allahabad Bank 033-22104754
• Axis Bank 1800 233 5577 / 1800 209 5577 / 1800 103 5577
• Central Bank of India 022-22153691
• Citi Bank- 1800-180-0123
• Computer Age Management Services Private Ltd. 044 – 30611606 / 07/ 08
• ICICI Bank 022-28308110
• IDBI Bank Toll Free Number for MTNL/BSNL subscribers 1800-22-1070 Toll Free Number for other than MTNL/BSNL subscribers 1800-200-1947
• IL&FS Securities Ltd. 022-42493000
• Oriental Bank of Commerce 011-47651319
• Reliance Capital Ltd. 022-3046 2300
• State Bank of Bikaner & Jaipur 18001806005
• State Bank of Hyderabad 09866582590/04023387471
• State Bank of India 1800 112211
• State Bank of Indore 1800-425-2241
• State Bank of Mysore 1800-425-2244
• State Bank of Patiala 1800 180 2010/0172-2648011
• State Bank of Travancore 18004255566
• The South Indian Bank 1800 843 1800 (Toll free)/1800 425 1809(Toll free)/0484 235 1923
• Union Bank of India 1800-022-2244
• UTI Asset Management Co. Ltd 1800221230
• Kotak Mahindra  Bank 1800-102-6022

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

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  NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 54 hits)

  New Pension System (NPS) Contribution Instruction Slip (22.1 KiB, 378 hits)

  New Pension System (NPS) - Offer Document (2.9 MiB, 510 hits)

  New Pension System (NPS) - Welcome Kit (1.2 MiB, 55 hits)

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