National Pension System - Retirement Plan for All

Pension plans provide financial security and stability during old age when people don't have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement.

According to United Nations Population Division World's life expectancy is expected to reach 75 years by 2050 from present level of 65 years. The better health and sanitation conditions in India have increased the life span. As a result number of post-retirement years increases. Thus, rising cost of living, inflation and life expectancy make retirement planning essential part of today's life. To provide social security to more citizens the Government of India has started the National Pension System.

• NPS
• Regulator and Entities for NPS
• Who can join NPS ?
• Benefits of NPS
• Tax Benefits
• Charges

Government of India established Pension Fund Regulatory and Development Authority (PFRDA) - External website that opens in a new window on 10 th October, 2003 to develop and regulate pension sector in the country. The National Pension System (NPS) was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.

Initially, NPS was introduced for the new government recruits (except armed forces). With effect from 1 st May, 2009, NPS has been provided for all citizens of the country including the unorganised sector workers on voluntary basis.

Additionally, to encourage people from the unorganised sector to voluntarily save for their retirement the Central Government launched a co-contributory pension scheme, 'Swavalamban Scheme - External website that opens in a new window ' in the Union Budget of 2010-11. Under Swavalamban Scheme - External website that opens in a new window , the government will contribute a sum of Rs. 1,000 to each eligible NPS subscriber who contributes a minimum of Rs. 1,000 and maximum Rs. 12,000 per annum. This scheme is presently applicable upto F.Y.2016-17.

NPS offers following important features to help subscriber save for retirement:

• The subscriber will be allotted a unique Permanent Retirement Account Number (PRAN). This unique account number will remain the same for the rest of subscriber's life. This unique PRAN can be used from any location in India.

PRAN will provide access to two personal accounts:

• Tier I Account: This is a non-withdrawable account meant for savings for retirement.
• Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.

Regulator and Entities for NPS

Pension Fund Regulatory and Development Authority (PFRDA) : Pension Fund Regulatory and Development Authority (PFRDA) - External website that opens in a new window is an autonomous body set up by the Government of India to develop and regulate the pension market in India.

Point of Presence (POP) : Points of Presence (POPs) are the first points of interaction of the NPS subscriber with the NPS architecture. The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend a number of customer services to NPS subscribers. The Pension Fund Regulatory and Development Authority (PFRDA) - External website that opens in a new window has authorized 58 institutions including public sector banks, private banks , private financial institutions and the Department of Posts - External website that opens in a new window as Points of Presence (POPs) for opening the National Pension System (NPS) accounts of the citizens.

Central Recordkeeping Agency (CRA) : The recordkeeping, administration and customer service functions for all subscribers of the NPS are being handled by the National Securities Depository Limited (NSDL) - External website that opens in a new window , which is acting as the Central Recordkeeper for the NPS .

Annuity Service Providers (ASPs) : Annuity Service Providers (ASPs) - External website that opens in a new window would be responsible for delivering a regular monthly pension to the subscriber after exit from the NPS .

• NPS Trust - External website that opens in a new window
• Trustee Bank - External website that opens in a new window
• Pension Fund Managers - External website that opens in a new window
• FAQs on Regulator and Entities of NPS - External website that opens in a new window

Central Government Employees

NPS is applicable to all new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004. Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under "All Citizen Model" through a Point of Presence - Service Provider (POP-SP).

• Procedure to subscribe
  • The Central Government employees can subscribe for NPS (Tier-I) through following process:
    • Submit form S1 to the Drawing and Disbursing Officer (DDO) or equivalent offices.
    • The DDO shall provide and certify the employment details.
    • Subsequently, the DDO shall forward the form to the respective Pay and Accounts Office (PAO) / District Treasury officer (DTO).
    • The form should be submitted to Central Recordkeeping Agency (CRA) - External website that opens in a new window for registration
    • Contribution to NPS
      • For the Central Government employees contribution through their nodal office to National Pension System (NPS) is mandatory. Every month 10% of his/ her salary (basic + DA) and equivalent government's contribution will be invested in NPS .
      • Withdrawal
        • As per the guidelines of Pension Fund Regulatory & Development Authority (PFRDA) - External website that opens in a new window or Ministry of Finance - External website that opens in a new window , the subscribers can withdraw from NPS on his/ her retirement, resignation or death. On retirement a subscriber would be required to invest minimum 40% of his / her accumulated savings to purchase a life annuity from Pension Fund Regulatory & Development Authority (PFRDA) - External website that opens in a new window empanelled and Insurance Regulatory and Development Authority (IRDA) - External website that opens in a new window approved Annuity Service Providers (ASPs) - External website that opens in a new window . Around 80% of amount has to be annuitized and remaining can be withdrawn by the subscriber on resignation. In case of death of the subscriber, entire amount will be handed over to the nominee.
          • Forms for Central Government Employees - External website that opens in a new window
          • Know your NPS Transaction Statement - External website that opens in a new window

          State Government Employees

          NPS is applicable to all the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments. Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under "All Citizen Model" through a Point of Presence - Service Provider (POP-SP).

          • Procedure to subscribe
            • The State Government employees can register for NPS (Tier-I) through following process:
              • Submit S1 form to the Drawing and Disbursing Officer (DDO) or equivalent offices.
              • The DDO shall provide and certify the employment details.
              • Subsequently, the DDO shall forward the form to the respective Pay and Accounts Office (PAO) / District Treasury officer (DTO).
              • The form should be submitted to Central Recordkeeping Agency (CRA) - External website that opens in a new window for registration.
              • Contribution to NPS
                • For the State Government employees contribution through their nodal office to National Pension System (NPS) is mandatory. Every month 10% of his/ her salary (basic + DA) and equivalent government's contribution will be invested in NPS .
                • Withdrawal
                  • As per the guidelines of Pension Fund Regulatory & Development Authority (PFRDA) - External website that opens in a new window or Ministry of Finance - External website that opens in a new window , the subscribers can withdraw from NPS on his/ her retirement, resignation or death. On retirement a subscriber would be required to invest minimum 40% of his / her accumulated savings to purchase a life annuity from Pension Fund Regulatory & Development Authority (PFRDA) - External website that opens in a new window empanelled and Insurance Regulatory and Development Authority (IRDA) - External website that opens in a new window approved Annuity Service Providers (ASPs) - External website that opens in a new window . Around 80% of amount has to be annuitized and remaining can be withdrawn by the subscriber on resignation. In case of death of the subscriber, entire amount will be handed over to the nominee.
                    • Forms for State Government Employees - External website that opens in a new window
                    • Know your NPS Transaction Statement - External website that opens in a new window
                    • FAQs - External website that opens in a new window

                    Corporate

                    A Corporate would have the flexibility to decide investment choice either at subscriber level or at the corporate level centrally for all its underlying subscribers. The corporate or the subscriber can choose any one of Pension Fund Managers (PFMs) - External website that opens in a new window available under “All Citizen Model” and also the percentage in which the funds are allocated in various asset classes.

                    • Benefits to Corporate
                      • NPS -Corporate model provides a platform to the corporate to co-contribute for the employee's pension. The corporate can save expenses incurred on self-administration of pension functions like setting up separate trust, recordkeeping, fund management, providing annuity, etc. Under NPS the corporate may exercise choice of PFM External website that opens in a new window , as also the investment pattern (allocation of corpus amongst three asset classes) for its employees or leave the option to employees. NPS is a prudentially regulated scheme with transparent investment norms, regular monitoring and performance review of Fund Managers by NPS Trust and overall supervision of Pension Fund Regulatory and Development Authority (PFRDA) - External website that opens in a new window . It offers a lot of flexibility in terms of choice of investment mix across Equity (max upto 50%), Corporate and Government bonds. Those not financially aware or inclined can manage the funds passively by opting for Life Cycle Fund in NPS in which the 50% equity exposure is reduced by 2% every year after the investor turns 35 till it becomes 10%. This is in keeping with the strategy to opt for higher- risk- higher- return portfolio mix earlier in life, when there is ample time to make up for any possible black swan event. Gradually one can move on to fixed- return -low -risk portfolio as one approaches retirement. Also, the choice of PFMs External website that opens in a new window and the investment pattern can be changed once in a year. Also, employer can claim tax benefits for the amount contributed towards pension of employees upto 10% of the salary (basic and dearness allowance) as Business Expense' from their Profit & Loss account under section 36(1) of the IT-Act.
                    • Benefits to Subscribers
                      • NPS allows one to accumulate corpus from the age of 18 years for forty odd years irrespective of geographies and employers in a single PRAN account with minimal leakages in the form of withdrawals for competing consumption expenses, reap the compounding effect of tax concessions and low fees, invest the corpus as per one's risk appetite with professionally managed funds, generate optimum returns followed by a seamless transfer of retirement wealth from the accumulation phase to any of the seven IRDA - External website that opens in a new window regulated Annuity Service Providers (ASPs) - External website that opens in a new window of ones' choice on reaching 60 years of age . The additional tax benefit to the employees joining NPS as per the Income Tax Act, 1961 is perhaps the finest USP of the scheme. A subscriber's contribution to NPS tier I upto 10% of the salary (Basic +DA) is tax exempt under sec 80 CCD (i) with a ceiling of Rs. 1.00 lacs under section 80 CCE. Besides, the employers' contribution upto 10% of the salary (Basic +DA) is also tax exempt in the hands of the employee under Section 80 CCD (2) of Income Tax Act. This exemption is over and above the Rs. 1.00 lac limit, thus making NPS the exclusive option for this tax treatment. Hence, by contributing to the NPS , the employer can provide an additional tax benefit to the employee by simply reorganizing the salary structure without incurring any additional cost to the company (CTC).
                    • Procedure to Subscribe
                      • Corporate can extend NPS to their employees by tying up with any of the approved PoPs through MOUs. An eligible corporate entity is free to negotiate charges with PoPs where POP-SP will undertake entire data upload as per All Citizen's model. The Corporate can register for NPS through following process:
                        • Submit CHO-I form - PDF file that opens in a new window along with the details of corporate Branch offices to the designated PoP.
                        • Designated PoP would ensure necessary due diligence on the status of corporate as required for Know Your Customer (KYC) verification as per AML/CFT guidelines issued by Government of India and submit the form to Central Recordkeeping Agency (CRA) - External website that opens in a new window duly certified.
                        • CRA would register the corporate in the CRA system and allot entity registration number, which would be reflected in each subscriber registration form (CS-S1) - PDF file that opens in a new window .
                    • Contribution to NPS
                      • A Corporate would have flexibility to provide investment scheme preference (PFM and Investment choice) either at subscriber level or at the corporate level centrally for all its underlying subscribers.
                    • Withdrawal
                      • As per the guidelines of Pension Fund Regulatory & Development Authority (PFRDA) - External website that opens in a new window or Ministry of Finance - External website that opens in a new window , the subscribers can withdraw from NPS on his/ her retirement, resignation or death. On retirement a subscriber would be required to invest minimum 40% of his / her accumulated savings to purchase a life annuity from Pension Fund Regulatory and Development Authority (PFRDA) - External website that opens in a new window empanelled and Insurance Regulatory and Development Authority - External website that opens in a new window (IRDA) approved Annuity Service Providers (ASPs) - External website that opens in a new window . Around 80% of amount has to be annuitized and remaining can be withdrawn by the subscriber on resignation. In case of death of the subscriber, entire amount will be handed over to the nominee.
                        • Forms for Corporate - External website that opens in a new window

                    Individual

                    All citizens of India between the age of 18 and 60 years as on the date of submission of his / her application to Point of Presence (POP) / Point of Presence-Service Provider (POP-SP) can join NPS .

                    • Procedure to Subscribe
                      • Any Individual can register as a subscriber in NPS by following procedure:
                        • Submit duly filled UOS S1 form to open a Permanent Retirement Account (PRA) (Tier I and/or Tier II) in NPS with other supporting KYC documents to POP-SP.
                        • For only Tier II account, an individual with an active Tier I account needs to approach the associated POP-SP and submit a copy of the PRAN Card along with UOS-S10 form (Tier II activation form) - PDF file that opens in a new window .
                        • POP-SP will validate the form and provide a receipt number to the subscriber.
                    • Contribution
                      • To contribute in Tier I and Tier II account, a subscriber is required to make his / her first contribution at the time of applying for registration (minimum contribution Rs. 500 for Tier I and Rs. 1000 for Tier II) at any POP-SP with NCIS ( NPS Contribution Instruction Slip) form - PDF file that opens in a new window . The NPS subscriber is required to make contributions subject to the following conditions:
                        • Minimum amount at the time of Account opening - Rs. 500
                        • Minimum amount per contribution - Rs. 500
                        • Minimum contribution per year - Rs. 6,000
                        • Minimum number of contributions in a year - one

                        A subscriber can decide on the frequency of the contributions across the year as per his / her convenience. No maximum limit has been mandated.

                        For Tier II, minimum contribution requirements are:

                        

                        • Minimum contribution at the time of account opening - Rs. 1000
                        • Minimum amount per contribution - Rs. 250
                        • Minimum number of contributions in a year - one
                        • Maintain minimum balance of Rs. 2000 at the end of each financial year
                    • Withdrawal
                      • In Tier I account, a subscriber can withdraw from NPS on his/ her retirement, resignation or death. On retirement a subscriber would be required to invest minimum 40% of his / her accumulated savings to purchase a life annuity from any Pension Fund Regulatory and Development Authority (PFRDA) - External website that opens in a new window empanelled and Insurance Regulatory and Development Authority (IRDA) - External website that opens in a new window approved Annuity Service Providers (ASPs) - External website that opens in a new window . Around 80% of amount has to be annuitized and remaining can be withdrawn by the subscriber on resignation. In case of death of the subscriber, entire amount will be handed over to the nominee. To withdraw from Tier II account, the subscriber needs to submit UOS-S12 form - PDF file that opens in a new windowto the associated POP-SP. If the request is entered and authorised in CRA system by the POP/POPSP before 1.30 PM, then it goes for same day's processing, or else it goes for the next business day. The redemption amount may vary due to the variation of NAV. Units are redeemed based on the NAV declared at the end of the processing day. On date of processing with addition of 3 days, the funds are transferred from the Trustee Bank - External website that opens in a new window to subscriber's bank account as registered in the CRA system.
                        • Forms for Individuals - External website that opens in a new window
                        • Know Your NPS Transaction Statement - External website that opens in a new window
                        • FAQs - External website that opens in a new window

                    Unorganised Sector Workers - Swavalamban Yojana

                    A citizen of India between the age of 18 and 60 years as on the date of submission of his / her application, who belongs to the unorganized sector or is not in a regular employment of the Central or a state government, or an autonomous body/ public sector undertaking of the Central or state government, can open NPS -Swavalamban account. The subscriber of NPS -Swavalamban - External website that opens in a new window account should not be covered under social security scheme like Employees' Provident Fund and miscellaneous Provisions Act, 1952, The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, The Seamen's Provident Fund Act, 1966, The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955 and The Jammu and Kashmir Employees' Provident Fund Act, 1961.

                    

                    • Procedure to register for Swavalamban Yojana
                      • People belonging to the unorganised sector can register for NPS Lite through following procedure:
                        • Contact the Aggregator and submit NPS Lite subscriber registration form with KYC documents like identity proof and address proof.
                        • Subscribers will receive a Permanent Retirement Account Number (PRAN) card through an aggregator.
                    • Contribution
                      • The subscriber of NPS Lite account is required to make contributions at the time of registration and subsequently through an Aggregator. The contributions made are subjected to following conditions:
                        • Minimum contribution amount at the time of Registration - Rs. 100
                        • Though there is no minimum contribution requirement per year, minimum contribution of Rs. 1000/-per year is recommended to avail Swavalamban - External website that opens in a new window benefit. However, it may be remembered the higher contribution amount will yield higher pension and since Swavalamban benefit is available for contribution upto Rs. 12000/- it may be desirable to save higher amounts in your NPS -Swavalamban account.
                    • Withdrawal
                      • The normal exit from NPS - Swavalamban - External website that opens in a new window account is at the age of 60. However, early withdrawal is also permitted with certain conditions. On withdrawal from NPS Lite account on 60 years of age, the subscriber would be required to invest minimum 40% of accumulated savings (pension wealth) to purchase annuity. At the time of exit, the effort is to give a monthly pension of Rs. 1000/-. If 40% of the amount is not sufficient to give pension of Rs. 1000/- higher percentage or entire pension wealth would be subject to annuitisation. On withdrawal before 60 yrs, the subscriber would be required to invest minimum 80 % of accumulated savings to purchase annuity. He can withdraw rest of the 20% amount. In case of death of the subscriber, the entire amount will be transferred to the nominee/ legal heirs. The nominee/ legal heir will approach the aggregator with necessary documents such as Death Certificate, Identity proof of the nominee, etc.
                        • Forms for NPS Lite - External website that opens in a new window
                        • FAQs - PDF file that opens in a new window

                    Benefits of NPS

                    Some of the benefits of the National Pension System (NPS) are:

                    • It is transparent - NPS is transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.
                    • It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a Permanent Retirement Account Number (PRAN).
                    • It is portable - Each employee is identified by a unique number and has a separate PRAN which is portable i.e., will remain same even if an employee gets transferred to any other office.
                    • It is regulated - NPS is regulated by Pension Fund Regulatory and Development Authority - External website that opens in a new window , with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust - External website that opens in a new window .