in Finance, India, Investment |

National Pension System (NPS)

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 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.

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 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 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, 19,166 hits)

  2.   New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 13,983 hits)

  3.   New Pension System (NPS) - Welcome Kit (1.2 MiB, 9,168 hits)

  4.   NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 10,439 hits)

  5.   New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 8,379 hits)

  6.   NPS Scheme Preference Change/Switch form (26.9 KiB, 3,224 hits)

  7.   Swavalamban Yojana Declaration Form (139.7 KiB, 3,467 hits)

  8.   Subscriber request form to change Point of Presence (POP) (63.3 KiB, 3,295 hits)

  9.   Subscriber request form to change POP-SP (16.4 KiB, 3,283 hits)

  10.   UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 3,071 hits)

  11.   Request form for change in signature and/or change in photograph (12.8 KiB, 2,862 hits)

  12.   Request For Change/Correction in Subscriber Master details And/Or Reissue of I-Pin/T-Pin/PRAN Card (402.9 KiB, 3,179 hits)

  13.   Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 3,629 hits)

  14.   S1 - Subscriber Registration form to get PRAN (61.3 KiB, 3,386 hits)

Launch Notification:

national pension system NPS

Facebook Comments
Jack of multiple trades. A generalist! Founder of Sparse Labs. Find me at FB, Twitter or LinkedIn .

Published

Write a Comment

Comment

793 Comments

  1. Hi Pankaj,

    I am a NRI residing in the US and I have contacted at least 14 PoP-SP’s and there is not a single one who is facilitating the opening of a the NPS for NRI’s. Its pathetic that the PFRDA has not set up the right incentive and monitoring programs to ensure that no Indian Citizen is turned down by any authorized PoP-SP. The scheme specifically is available for NRI’s but clearly not supported. Any suggestions?

    Thanks,
    Ravi

    Reply to Ravi

    • @Ravi
      Unfortunately, banks are not gaining much out of the NPS and that’s why they are not pushing it. Its just the Govt push which is making it mandatory for them to facilitate applications.

      Reply to Pankaj

      • Hi Shailendra,

        I am working with CAMS and have already submitted my application and opening deposit. Even after a lapse of 22 days no update on units credits or online login details (IPIN)…truly amazing how poorly the whole process is designed by PFRDA and supported by CAMS!

        Reply to Ravi

  2. sir i want to join nps. i am 33 yrs old. can this give me the retirment benifits like other govt employee ? and how much amt i invest per month so i can get arround 45000 per month pension after 60 yrs.

    Reply to VISHAL

    • Hi Vishal,

      Any indian citizen who is of 18 – 5 years age group can join this scheme, so you can join it and it will provide same benfit like central govt employee are availing as it is compulsary for them to open NPS account. finaly for obtaining 45K P.M. pension you’ll have to subscribe 2000/-

      Anty other question are welcome !!!!!

      Reply to Shailendra

      • Hi Shailendra,

        I have a question relating to the proposed EEE status of NPS effective April 1, 2012. Currently under the EET status there is no maximum contribution limit. One can invest any amount from Rs 2000 onwards to several crores (there is no upward limit). When the account attains EEE status just like all other EEE products there has to be a maximum deposit allowed. What happens to the funds deposited for the preceding 2 years (2010 and 2011) under EET status? Will the entire existing balance be grandfathered for EEE status starting April 1, 2012?

        Appreciate your prompt response.

        Reply to Ravi

    • To All,

      POP-SP Update – After escalation to PFRDA and getting them involved, I have come to the conclusion that CAMS is the best POP-SP to date. Neither Post Offices or Banks have any incentive to promote and support this scheme. If you are looking for a good POP-SP provided give CAMS a try.

      Regard,
      Ravi

      Reply to Ravi

  4. Any body can suggest how we should chose the % for E,C & D category… and which fund manager is good performer. I have to chose one fund manager and divide fund E,C & D category or only C & D what ever. Any idea guys for long term which fund and fund diversification.

    Reply to Ram

      • UTI has demonstrated the best performance for equity schemes with a return of approx 24.6% as of June. Read the article below for more information:

        http://economictimes.indiatimes.com/news/economy/finance/NPS-returns-make-case-for-investing-PF-funds-in-equity/articleshow/6550427.cms

        Please note that the high double-digit return posted here is only for the equity portion of NPS investments (currently capped at 50% of your total investment)

        Another loophole in the poorly designed NPS scheme is that while PFRDA requires all the 6 Fund Managers to make available the NAV on a daily basis, the YTD or Commencement To Date Return on Investment is not made available. Given that not all investors are savvy enough to compute the Rate of Return this is a huge black hole in the process. Additionally given that investors will be crediting funds at various points during the year, an online calculator or standard prescribed methodology to compute individual rate of return has also not been provided. Complete abuse and lack of transparency for something that is designed to become the retirement vehicle of the future for all Indians including NRI’s resident abroad.

        Reply to Ravi

  5. Hi pankaj

    Can you tell me what will be the criteria for receiving pension after annuitizing the 40% amount? How much will the rate of interest of annuity? Suppose today I received 60% in lump sums and annuitize 40% as 100000 rupees then how much pension I will get per month from today onwards? Will the rate of interest be variable during rest of life span? Kindly elaborate so that I can invest in NPS.

    Reply to amit

  7. Dear all

    I am Anugrah chaturvedi, age-26, working in private company. I just want to register myself for the National pension scheme(NPS).

    So I just want to know the detail like-Documentation, Duration, Minimum Amount to subscribed, how we can get enroll with the scheme, and also clear me how this scheme Beneficial for me.

    Kindly also suggest how the NRI can use this scheme or not, if yes than how?

    Your prompt reply in this regards is highly appreciated.

    With regards

    Anugrah chaturvedi

    Reply to anugrah

  8. I am shivanshu, age-37, working in private company. I just want to register myself for the National pension scheme(NPS).

    So I just want to know the detail like-Documentation, Duration, Minimum Amount to subscribed, how we can get enroll with the scheme, and also clear me how this scheme Beneficial for me.

    Kindly also suggest how the NRI can use this scheme or not, if yes than how?

    Your prompt reply in this regards is highly appreciated.

    With regards

    Shivanshu Mishra

    Reply to Shivanshu

  9. well….. as per as my concern this NPS scheem would not attract the employees. because the investment options are not so good.equity, balanced or debts investment options should be optional for each…..because this money market based investment

    Reply to hitesh

    • Hi
      Do’nt focus on “INVESTMENT” this is the game of financial experts, think about retirement stage or old age’s financial coverage.

      Do you know ?? that out of 253 billion people 94% are still not having any retirement or old age financial coverage !!

      NPS is for those common indian individual who are leveing in BPL level, that is why PFRDA have fixed subscription is as lowest as 500/- PM so that a labour can also think about it.
      LET them think & plan about their future.

      Reply to Shailendra

  10. hi friends,,
    i go through all the article abt nps and discussion also,,,

    i have 2 question in my mind,,
    1- if i started to invest 1000/month can i raise investment in coming years when i get salary raise,,,

    2- if i start with EET shell it will automatically converted to EEE or i have to wait upto 2012

    Reply to Rahul

    • @Rahul
      1. Yes you can raise your investment anytime.
      2. I did not understood what you are trying to say.
      EET and EEE are for tax-ability of investments, these are not any scheme you invest into and not in your hands.

      Reply to Pankaj

  11. sir,,
    i mean to say that if i started investing right now, so i fall in category of EET and as proposed by govt in DTC from 2012 onwards NPS will be EEE so should i wait up to 2021 to get benefit of EEE

    Reply to Rahul

      • The question asked my Rahul Jain is: If one opens an account in 2010 under the EET status, will the account along with the entire balance existing as of April 1, 2012 get grandfathered and converted to EEE status (assuming DTC is approved)? Or would the balance as of March 31, 2012 be consider EET and tracked separately throughout the remainder of the Tier 1 term until maturity? This is a very important question that I have raised to both PFRDA and PPO-Sps like CAMS and havent received any input to date.

        Reply to Ravi

  13. I have two clarification

    1. In the above details nothing about the maturity (i.e. after the age of 60 what is the pension amount or percentage or what is the maturity value or retun after the age of 60
    2. How long the return will be

    Reply to Veerangan

  14. I have leftover service of 8 years,to get pension Rs 15000/- pm , after60 years ,
    how much amount I have to invest P.A. in NPS . please advice.

    Reply to vsr

    • Dear Mr. VSR,

      For getting the desired return i.e. 15000/- PM after 8 Year you will have to subscribe 12500/- PM (150000/- PA)

      Regds
      Shailendra

      Reply to Shailendra

  16. I am 31 and work in a private firm. Can i contact the nearby post office for the NPS scheme or should i approach the branch only? I f i have to go to the bank, can i approach any branch of that bank? And of I invest Rs. 5000 per month, i.e rs. 60000 per year ho much pension will i get at 60 and ho long ill i get it and in case of my death ho will the benefit be passed to my heirs?

    Reply to lily

    • Hi Lily,

      Can you let us know that what is your location ? where you belong from ?

      how ever i can guide you that on an investment of 5000/- PM you will get a return of Rs. 81 Lacs approx, at the retirement age i.e. 60 Year.

      Regards
      Shailendra

      Reply to Shailendra

  17. I am 42 years and wish to invest in NPS around 2000 per month. Can I go for NPS 1 or 2. Which one is better for me. Which option is better equity link low/medium or high risk. Please suggest.

    Reply to manju

    • @Manju
      Under NPS two types of account would be available to the subscribers, Tier-I account-where you contribute your savings for retirement into a non-withdrawable account,
      and a Tier-II account –a voluntary savings account form which you are free to withdraw your savings whenever you wish.
      An active Tier I account is a pre-requisite for opening of a Tier II account.
      Tier II does not provide tax benefit.
      Equity option is best if you can take risk. Better is to choose active choice which automatically divide investment into equity and debt based upon investor’s age.

      Reply to Pankaj

  18. Hi,

    Recently I have opened my NPS account with SBI Branch. Just want to know can I transfer my account from SBI to any other bank. If yes, is there any charges for the same and what will be its procedure?

    Thanks,
    Shashank

    Reply to Shashank

    • @Shashank
      NPS account is not maintained by SBI branch. This account is maintained by CRA (central record-keeping agency).
      You can change your POP (point of presence) location and it does have any charges. You can visit a different branch and deposit contribution.

      Reply to Pankaj