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.
Any Indian citizen will be able to start a National Pension System account and can start investing any amount up for a pension.
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 Limited, IDFC Pension Fund Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, UTI 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.
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.
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 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.
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.
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.
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.
NPS (New Pension Scheme/System) - Application Form (456.0 KiB, 19,346 hits)
New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 14,183 hits)
New Pension System (NPS) - Welcome Kit (1.2 MiB, 9,388 hits)
NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 10,652 hits)
New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 8,649 hits)
NPS Scheme Preference Change/Switch form (26.9 KiB, 3,485 hits)
Swavalamban Yojana Declaration Form (139.7 KiB, 3,662 hits)
Subscriber request form to change Point of Presence (POP) (63.3 KiB, 3,443 hits)
Subscriber request form to change POP-SP (16.4 KiB, 3,696 hits)
UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 3,312 hits)
Request form for change in signature and/or change in photograph (12.8 KiB, 3,059 hits)
Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 3,865 hits)
S1 - Subscriber Registration form to get PRAN (61.3 KiB, 3,621 hits)
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View Comments
In a private ltd company, if the employer wants to contribute towards the NPS of the employee, will the employer get the tax benefits?? if so, den under which sections, the co. will get the benefits and how much..???
@Pavan
Employer contribution to new pension scheme will be considered as an expense in P/L accounts. There are not such other tax benefits.
Dear Pankaj,
Is NPS is one of the best available option for securing income after retirement? My age is 29 and retirement age is 58. Kindly suggest.
@Sudip
Best option to generate wealth in long term is to invest into a mix of Equity and Debt based investments.
As per your age, you can start investing in Diversified equity mutual funds and Debt based mutual funds in a ratio that suits your short term and long term goals.
NPS also invests in a mix of equity and debt as per ratio selected by you, but as of now NPS funds are not managed that well as compared to mutual funds.
sir ,
i am a govt employee . my annualy nps contribution (25000) approximate & same govt annualy nps contribution (25000) approximate.
please clarify my gross salary includes both (25000+25000) or not ?
and exemption limit 100000 includes both (25000) +(25000) or not ?
@Gajendra
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 25,000 to your account and you contributes same amount, Your 25000 will be available for exemption under 80-C and there won’t be any income tax on rest 25,000 deposited by employer.
Your gross salary will include both 25000s but only 25000 can be claimed for deduction under 80-C one lac limit.
If both the 25000s is included in the gross salary and deduction is available only on the employer contribution portion u/s 80C, what will happen to other 25000 which is also included in gross salary. How there won’t be any income tax on rest 25,000 if it is already included in salary. pls clarify.
Thank u in advance...
@Suraj
Other 25000 (employer portion) is not considered salary income and income tax is anyways not payable on that part.
I am a govt. employee, my NPS contribution 10% of Pay+DA in Tier-I accounts.
I want to open Tier-II accounts and invest 1000 P.M. (12000 P.A.), Please give solution for how to work tier-II account and whats return after retirement.
@K.P.Dahiya
Tier-II will be withdraw-able account from which individual can withdraw money anytime without giving reason.
There will not be any contribution from Govt. side in this account.
You can get this opened from bank or post office. Amount will be invested in scheme selected by you. there is choice of six fund managers and three assets classes (E,C,G).
You can also save under Auto Choice choice, where funds will be automatically invested in asset class based on your age.
Returns in NPS (both tier 1 and 2) are not guaranteed and depends on your portfolio and market performance.
This site is very informative regarding financial issues, NPS.
Hi,
i have been subscriber of normal pension fund (EPF) as it was the only option available 12 years back. If i want to transfer this amount to NPS, what are the problems?
any tax liabilities? can my employer contribute to NPS with equal matching amount?
under what head he can show it in my salary slip and how does he get tax benefit?
can we indicate to employer to directly deduct this contribution to NPS (instead of receiving in bank and I submitting it to NPS).
@Amit
As of now, there is no EPF to NPS transfer mechanism available.
If you want you will have to first withdraw EPF amount and then deposit into NPS.
If EPF account has been maintained by you for more than five years in continuity, income tax won't be applicable on withdrawal.
You employer can contribute to NPS and like EPF, employer contribution won't be considered as part of your income and won't be taxed. In salary slip, it won't be shown like EPF. Only employee part deduction will be shown in salary slip.
You may also be able to claim 80-C deduction for investment done by you in NPS.
You can contact your employer to start employer's NPS contribution if they agrees to it. You can contact CAMS (http://www.camsonline.com/PensionSystemServices.aspx) they deal in opening employer accounts.
Under NPS scheme, whether withdrawl is possible on account of pre-payment of home loan. Please clarify.
@Anand
As of now withdrawal is not possible before 60 years.
But recommendations have been passed to govt by committee to allow withdrawals in some cases like critical illness etc. Lets see when they gets implemented.
in our college 10%of the basic pay is deducted and same amount of govt contribution is also shown in the pay slip under NPS. but no information is given regarding where the money is deposited nor any PRAN no is given to us. we suspect some foul play in part of our account department as even after repeated request they are not providing any information regarding our money. ours is a govt. college.please let us know what to do?
@Dr. Deepshikha
Account department must provide you PRAN number and other details regarding your NPS account.
If they don't provide same, I would request you to raise complaint against them to their reporting heads (principal of college or in university).
This complaint of Dr. Deepshikha's was also the case in my institution (a government hospital and educational institution in Chandigarh). They were deducting the money and not showing where it was going.
After some queries, they are now saying that PRAN no.s will be raised for all employees...
Dr. P
respected sir recently i heard that new pension scheme was challenged in CAT chennai bench
by DREU and got interim relief in case no 575/2011.copy of the order can be seen on DREU website i want to know now what is the new developemet in this policy is it mandatory for govt servents who joined after 01-01-2004 or any changes come.DREU made govt of india and indian railway as parties in this case kindly answer my joining date is 01-01-2004.
@Kishor
As per our knowledge, all government employees joined on or after 1st Jan, 2004 would have new pension scheme accounts only. We don't have much information on DREU case.
I am Shivananja from Bangalore, I have started investing now in NPS I am 55 years & wife age is 47 years, I f I start investing Rs,25000/- yearly, when my & wife pension starts how much I can get back after what year.
regards
shivananja
@K N Shivananja
Returns on New Pension scheme are not fixed and depends on your investment proportion in Govt bonds, Debt and equity based funds.
At age of 60 years, pension amount will be dependent on fund value at that time.