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.
- 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.
Application Forms
NPS (New Pension Scheme/System) - Application Form (456.0 KiB, 19,173 hits)
New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 14,005 hits)
New Pension System (NPS) - Welcome Kit (1.2 MiB, 9,174 hits)
NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 10,446 hits)
New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 8,385 hits)
NPS Scheme Preference Change/Switch form (26.9 KiB, 3,229 hits)
Swavalamban Yojana Declaration Form (139.7 KiB, 3,473 hits)
Subscriber request form to change Point of Presence (POP) (63.3 KiB, 3,301 hits)
Subscriber request form to change POP-SP (16.4 KiB, 3,301 hits)
UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 3,077 hits)
Request form for change in signature and/or change in photograph (12.8 KiB, 2,868 hits)
Request For Change/Correction in Subscriber Master details And/Or Reissue of I-Pin/T-Pin/PRAN Card (402.9 KiB, 3,184 hits)
Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 3,639 hits)
S1 - Subscriber Registration form to get PRAN (61.3 KiB, 3,395 hits)
You can open NPS through FundsIndia.com
i have phoned to NSDL DELHI to change my scheme to E but they told me that at present there is only one scheme open for govt employee which is DEFAULT and the same can be conformed from CRA web site.but under this scheme what % of money is being contributed in equities?
regards,
RAM
@Ram
Please download NPS Scheme Preference Change/Switch form from this page: http://www.pankajbatra.com/downloads/?dl_page=2.
Fill the same and deposit in your nearest POP office.
hi Pankaj,
i have to make the *.fpu file for the salary of the new joineees of centralGovt in varios deptt. please guide me how to make it.or where i can get help tomake the *.fpu file.
Pl. Tell me
Goerment servent can invest in NPS ?
Yogesh
@Yogesh
Yes, NPS account can be opened by any India citizen.
charges are of a little bit high, hopefully if the charges are 80% cut down and tax is exempted, then I shall definitely buy the product- please mark my point
Pls. give me tire 2 details. how is working.
@Sanjay
I will post Tier 2 details soon as a separate article.
If a Govt. employees got appointed on higher posts agaist Direct recruitment posts in his dept. or any other department after 1.1.2004, is eligible for older pension or has to opt for NPS
@Chandrahas
I believe if its appointment in same Govt office or if its a promotion, then older pension will continue.
In case its a resignation (all old accounts cleared) and then a new joining, NPS will apply.
Hey Pankaj, Its surprising that I came across exactly the same article on http://www.moneysavingshelp.com/2010/financial-planning/full-details-national-pension-scheme-nps-pfrda-india/
@Rahul
Very surprised to see this post.
How one can just steal content as it is.
Is there anything which can be done to stop this and punish these guys?
Hi Pankaj,
Is NPS same as PPF ? If not, what are the differences, if you could explain ? What are pros and cons for both in the long run ? Can I invest in both ? thanks !
@Smitakshi
NPS is not same as PPF.
PPF is a 15 years deposit scheme where you get a fixed return (8% p.a.). Its not exactly a retirement/pension plan. After 15 years, you will get whole amount back.
NPS is a pension scheme, which runs till retirement. It presents different investment options (equity, debt and Govt securities). Investor can choose the allocation to each of these investment options. Also investments are managed better by big fund houses like Reliance, SBI, ICICI, Kotak etc. Investment in NPS will be locked till 60 years. In long run, it will generate better returns than PPF and will give a retirement solution as well.
You can invest in both NPS and PPF simultaneously.
please tell me after retirement NPS will start to pay pension to a/c holders till death ?
@Naveen
Yes, NPS will pay monthly pension after retirement (60 years of age)
Dear Pankaj,
great site!
I wonder if you could help me. I am a doctor in a corporate hospital with an NPS account (50% equity and 50% debt, govt. nil) since April 2010 with SBI as my POP.
Of the 8 lakhs I invested in the NPS, I am DOWN to 7.58 lakhs now.
I read online that the average return on the scheme is 12%. Would you know then why I am losing my principal amount?
Best regards,
PS
@P sharma
Since you have invested 50% into equity and 50% into debt, there is a risk associated with the equity portions.
Since last six months, equity market have performed badly due to inflation and other local/global economic conditions. Due to this your equity portion has been hit badly.
In short term, market may do bad and your return may be negative. But in long term, it will generate better returns than fixed deposits and bonds.
If a person is working in private sector currently has an NPS a/c and after which he joined government sector whether he can continue with the same or he need to open a new NPS a/c separately.Is there any compatability between NPS account of Govt employee and others
@Parameshparamam
Same NPS account can be continued when a Govt office is a joined.
@Pintoo I think they provide a utility to make a *.fpu file and after that you should pass it through FVU also which generate a *.fvu file.
i am working in PSU (powergrid corporation).and we are having a small self contributory pension fund & pf account. if i join nps ,am i eligible to get the equal contribution from govt.i wold like to invest 10000/- per month . which option will i have to select .tier-1 or tier -2. pls advice
jomy
@Jomy
Equal contribution from Govt is only applicable for State and Central Govt employees. I think, PowerGrid and other PSUs does not come under same.
Contribution in Tier-1 is compulsory for NPS account. Once you have Tier-1, only then you can get Tier-2.
hey plz send me the details of NPS
i didnt get it
Please log on to http://www.pfrda.org.in or http://www.camsonline.com for complete details on NPS.
sir, I am working in central PSU .i like to put Rs10000/- in nps per month.could u pls advice me how much amount i have to put in Tier -1 and how much in Tier 2 for better returns. my age is 45.pls advice
@Jomy
Tier-I account is a non-withdrawable account, where you invest for retirement, whereas, Tier-II account is a voluntary savings account form which you are free to withdraw your savings whenever you wish.
Investment in Tier2 account won’t be available for tax exemption.
If you want to invest purely for tax purposes, then invest full 10000 into Tier-1, else you may consider other long term investments with mix of products like diversified equity mutual funds, PPF, Post office, Gold ETFs etc.
SHALL WE CLAIM NPS INVESTMENT UNDER SECTION 80C AS DEDUCTION UNDER INCOME TAX ACT1961
Yes, you can avail tax benefit under 80CC D for Tier-I account in NPS.
@Prasanna
Yes, contribution in Tier1 account can be claimed for exemption under 80-CCD.
Max limit under 80-C and 80-CCD combined is 1 lakh.
Hi Pankaj, Is it mandatory for both the employer and employee to contribute? or only Employer can contribute and can be claimed as deduction U/s 80CCD?
@Naresh
Employer contribution won’t be considered as part of employee taxable salary and there will be no tax liability from employee side on this amount.
This part cannot be claimed as deduction u/s 80CCD.
its good . can we start from lic
Can you suggest me Best Fund Manager, My current Fund mnamager is Kotak Mahindra.
Which PFM u would suggest?
@Mukesh
You may compare NAV of all fund managers on http://www.npscra.nsdl.co.in/modules.php?name=navSearch
In Tier1, SBI, ICICI and SBI are best performers in Schemes C, E and G respectively.
In Tier2, SBI, UTI and UTI are best performers in Schemes C, E and G respectively.
Thanks for your kind and quick response…
sir please tell me that after resignation from govt. office and joined a new govt. job is it necessary to run pre existing pran . i want to open new nps a/c is it possible/? pls it is very urgent
@Sanjeev
PRAN is a unique number and won’t be reissued for same person again.
as i changed my job from indian railway to central exice officer i want to open a new nps a/c is it possible ?
this is to bring to your kind notice that i am working in Govt. Aided School as a LDC.
You are requested to kindly give me information that how can i open a CPF A/c
please give me the complete procedure.
How can i know the deposit amount from time to time in NPS under PRAN
@Jahangir
You may login on https://cra-nsdl.com/CRA/ and check your investment details.
At the time of account opening userid and password is sent to postal address.
Pankaj,
Great article. I have one query on NPS. Our company has less than 7 employees and hence we don’t have EPF scheme. Can I get my employer to contribute to my NPS account? If yes, how does he do it.
(We will be able to make some tax benefits if our employer makes contribution to NPS as the employer contribution will not be considered for tax purposes)
@Natraj
As of now, there is no notification from Govt to replace EPF in private companies with NPS.
But yes, you may ask your employer to contribute to new pension scheme rather than EPF, in case company size is less than 20 or for member with basic salary more than 6500.
Like EPF, Employer’s contribution now will not be a part of salary and there won’t be any tax payable on it.
So if your CTC package (P) has 2X amount for NPS (X each for employer and employee), employee will be taxed on P-X, on which he may be able to claim deduction of X further under 80-C.