National Pension System

NPS – New Pension Scheme – Boon for your old age

NPS called National Pension System  is a pension scheme wherein every citizen can participate. The pension they get depend on the amount contributed and the return generated under the scheme.

What is Pension ?

Pension is the monthly amount you get for your living from the amount you contributed to pension fund for a certain number of years.

Why you need pension?

The drastic increase in number of old age homes is the best answer for this.  Now a day the concept of joint family has almost become extinct. The families are shrinking to micro families consisting of husband , wife and their children. The parents are made to leave home, ill treated and in many cases parents are finding difficult to adjust to new lifestyle and voluntarily leave home.  The single parent trend  and divorce cases are increasing day by day.  This defines the need for pension system.

About New Pension System (NPS)

The NPS is introduced by Government of India to address all above needs. The system is  regulated by PFRDA (Pension Fund Regulatory and Development Authority) and NSDL (National Securities Depository Limited ) is appointed as CRA (Central Recordkeeping Agency) for the scheme.

How to open the account under NPS

This is a very simple process. PFRDA has appointed many Banking and Non-Banking Financial Companies as POP-SP (Point of Presence – Service Providers)  with whom you can open your account. The full list of POP-SP is available at PFRDA website.

Documents required to open account under NPS

a      >NPS account opening form

b       >One photo

c       > PAN card, Voter ID, Driving Licence etc  (for Identity Proof)

d       >  Bank Pass Book, Voter ID, Driving Licence etc (for address Proof)

e       >   Cancelled cheque

Initial Contribution (minimum Rs.500/- plus charges for account opening etc)

Account options available

Tier I account and Tier II account

About Tier I account

This is compulsory account to be opened under NPS.

Minimum contributions under this scheme is Rs.6000 per year.

There is no upper ceiling for contribution.

You can invest monthly or as per your choice but one contribution of Rs.6000 per year is compulsory for keeping the account alive.

You can make investment in Equity, Corporate bonds, Government Securities as per your wish. There are two choices of investment one is Active where you decide the percentage of investment in above category . Equity (max. 50% of investment ) Corporate Bond ( max. 100% of investment) Government securities ( max. 100% of investment).  The general perception is that Equity has maximum risk and maximum return, Corporate Bond has medium risk and medium return, Government securities has Low risk and low return.   The other type of investment is Auto wherein the Pension fund manager through which you decide to invest can invest the amount as per their wish which is normally called life cycle fund. The investment is normally made as below.

set allocation under auto choice

Age	Asset Class E	Asset Class C	Asset Class G
Upto 35 years	50%	30%	20%
36 years	48%	29%	23%
37years	46%	28%	26%
38 years	44%	27%	29%
39 years	42%	26%	32%
40 years	40%	25%	35%
41 years	38%	24%	38%
42 years	36%	23%	41%
43 years	34%	22%	44%
44 years	32%	21%	47%
45 years	30%	20%	50%
46 years	28%	19%	53%
47 years	26%	18%	56
48 years	24%	17%	59%
49 years	22%	16%	62%
50 years	20%	15%	65%
51 years	18%	14%	68%
52 years	16%	13%	71%
53 years	14%	12%	74%
54 years	12%	11%	77%
55 years	10%	10%	80%

Pension Fund Managers:

Pension Fund Managers are the persons handling your money. The money you deposit with POP-SP is transferred to Pension Fund managers who in turn will invest the money according to your choice. The PFM as on date are

1.       LIC Pension Fund Limited

2.       SBI Pension Fund Limited

3.       UTI Retirement Solutions Ltd

(All government  departments who cover their employees under NPS has to route their funds through above three PFMs only)

4.       HDFC Pension Management Co. Ltd.

5.       ICICI Prudential Pension Fund Management Co. Ltd.

6.       Kotak Mahindra Pension Fund Ltd.

7.       Reliance Capital Pension Fund Ltd.

8.       Birla Sunlife  Pension Management Limited

(Private firms and General Public can invest in any of PFMs listed from 1 to 8)

About Tier II account

This is an optional account that can be opened with Tier I account.

Minimum contribution under this scheme is Rs.1000 at the time of opening account and Rs.2000 per year and there is no ceiling on maximum contribution.

This is like investment account, the subscriber can withdraw the amount from this account any time.

Pension options:

1)      When you attain age of 60

You will have to invest minimum 40% of the corpus to purchase annuity which provides you monthly pension. The remaining 60% is given to you in lump sum. You also has the option to keep your lump sum investment invested and get it back anytime till you are 70.

2)      You want to exit from NPS before 60

You will have to invest minimum 80% of the corpus to purchase annuity which provides you monthly pension. The remaining 20% will be given to you in lump sum. But you had to be invested in NPS for minimum of 10 years.

3)      If you die before 60 years then 100 % of the corpus will be given to nominee.

Partial withdrawal options:

You can partially withdraw your contribution from the fund but on certain conditions

1)      You have to be invested for minimum period of 10 years.

2)      You can withdraw 25% of your contribution.

3)      You can withdraw for certain specified reasons only.

4)      You can withdraw maximum 3 times during entire period with a gap of 5 years for each withdrawal.

Tax exemptions available:

1)      Under NPS tax deduction can be claimed upto 10% of  salary (Basic plus DA) subject to overall ceiling of Rs.1.5 lakh per anum under section 80 CCE of income tax.

2)      An additional deduction of Rs.50000 per anum is available towards contribution to NPS Tier I account under section 80 CCD (1B).

How to monitor your investments:

        On being enrolled with POP-SP with minimum subscription you will receive your PRAN card within one month. The PRAN card will contain your 12 digit NPS number .  Then you will receive your IPIN and TPIN. IPIN can be used on internet to access your account at www.cra-nsdl.com  whereas TPIN can be used to communicate over telephone at 1800-222080.

I have tried to give the required information on NPS further information can be got by visiting PFRDA or NPS websites.