Scheme for Govt employees

Entry:

For Government Employees: National Pension System (NPS) has been introduced by the Central Government on 01 January 2004 and is being regulated by Pension Fund Regulatory and Development Authority (PFRDA). This scheme has already been made mandatory for Central Government employees who joined their service on or after 01/01/2004 (except the armed forces). Most of the state governments have also joined NPS for their employees, who joined their service on or after 1st January 2004.

The NPS is a two tier Defined Contribution Pension System.

Tier I : Mandatory non-withdrawable Pension Account mandatory for Central Government employees who have joined services on or after 1st January 2004. The employees will Contribute 10% of basic salary & DA and matching 10% will be contributed by the Government to Tier-I Pension account of the employee.

Tier II : Voluntary withdrawable Savings Account. No contribution will be made by the Government under the Tier-II account for the employees who have joined NPS.

Contribution:

Central Government employees who have joined services on or after 1st January 2004 will Contribute 10% of salary & DA and matching contribution by government. Individuals can normally exit at or after age 60 years from the pension system. At exit, the individual would be required to invest at least 40 percent of pension wealth to purchase an annuity. In case of Government employees, the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual would receive a lump-sum of the remaining pension wealth, which subscriber would be free to utilize in any manner. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitisation would be 80% of the pension wealth.

Mandatory Annuitization:

Under the NPS, an employee will be entitled to exit only at the time of retirement at the age of 60, however at least 40 per cent Pension wealth would be used for purchasing annuity from a life insurance company approved by the IRDA.

All-citizens and scheme for corporate subscribers:

National Pension System has been made available to all citizens of India from 1st May, 2009. Subscriber can be resident or non-resident Indian. The subscriber age should be between 18 and 65 years on the date of application. Minimum contribution per instalment is Rs 500 and minimum contribution per year is Rs 1000, with atleast 1 contribution per year.

Mandatory Annuitization:

For All Citizens: The normal retirement age has been fixed at 60 years. At 60, the subscriber will be required to use at least 40 per cent of accumulated savings to buy a life annuity from an insurance company. However, the subscriber has the option to defer the lump sum withdrawal till the age of 70 years. Subscriber has also got the option to continue contributing upto the age of 70 years. This option is required to be exercised upto 15 days prior to completion of 60 years.

For those looking to exit before turning 60, there is an option to withdraw 20 per cent of the accumulated savings but to buy an annuity with the remaining 80 per cent.

If the subscriber dies before he or she turns 60, the nominee can receive the entire pension corpus.

PRAN: Under the new pension system, Central Record Keeping Agency (CRA) will be required to maintain subscriber accounts and issue a unique Permanent Retirement Account Number (PRAN) to each subscriber.

Portability: Under NPS, employee’s pension account is portable. The same account and PRAN continues even when subscriber switches jobs or schemes or fund managers. Investors have the flexibility to choose between fund managers.

Multiple Funds: NPS envisages multiple pension fund schemes with different weightages of Asset Classes.

Entities under NPS Architecture

NPS is a well-structured Defined Contribution Pension system with defined role of various entities.

Operationalisation of National Pension System (NPS)

For Government Employees : NPS has been introduced by the Central Government on 01 January 2004 and is being regulated by Pension Fund Regulatory and Development Authority (PFRDA). The NPS for Government employees has been operationalised in 2007-08 with the appointment of three (3) Sponsors (LIC, SBI Mutual Fund and UTI Mutual Fund) to manage the funds of NPS & Central Recordkeeping Agency (CRA) and the sponsor entities in turn has formed separate companies for managing the funds of NPS. LIC Pension Fund was sponsored by LIC of India, SBI Pension Fund was sponsored by SBI and UTI Retirement Solutions (P) Ltd has been sponsored by UTI Mutual Fund.

for All Citizens : NPS has been made available to all citizens of India from 1st May, 2009. Eight Pension Fund Managers including LIC Pension Fund have been appointed to manage the fund under NPS for all citizens. Any citizen of India desiring to open an NPS account can contact any of the Points of Presence (POPs) appointed by PFRDA or through eNPS.