New Pension System By PFRDA: Part-I

OVERVIEW OF NPS

• Pension Fund Regulatory and Development Authority (PFRDA) was established by Government of India on 10th October, 2003 (Ministry of Finance Notification No: F.No.5/7/2003- ECB & PR).

• New Pension System was initially developed for Central Government's new recruits (mandatory except armed forces) with effect from 1st January, 2004. The monthly contribution is 10% of the salary and DA to be paid by the employee and matched by the Central Government.

• New Pension System (NPS) was extended to all Citizens from 1st May 2009. The new pension system is voluntary for Individuals (who are not Government employees) .

• There is no contribution from the Government in respect of Individuals.

• The contributions and returns thereon would be deposited in a non-withdrawable pension account (TIER-I).

• NPS uses the existing network of bank branches/ post offices etc to collect contributions. PFRDA issued a list of more than 4500 branches of banks and post offices etc covering all over India.

• No headache in transfer of accumulations in case of change of employment and/or location.

• It offers a basket of investment choices and Pension Fund managers.

• Pension Fund Managers are: SBI Pension Funds Pvt Ltd, ICICI Prudential Pension Fund Management Company Ltd, IDFC Pensin Fund Management Comapny Ltd, Kotak Mahindra Pension Fund Ltd, Reliance Capital Pension Fund Ltd.
• In addition to the above pension account, each individual can have a voluntary TIER-II withdrawable account (optional). These assets would be managed in the same manner as the pension i.e. TIER-1 A/c. The accumulations in this account can be withdrawn anytime without assigning any reason.

• Policy holder 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. The individual would receive a lump-sum of the remaining pension wealth, which he/she 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.

• In case of retirement of Government employees, the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse.

• There will be one or more central record keeping agency (CRA), several pension fund managers (PFMs) to choose from which will offer different categories of schemes.

• The participating entities (PFMs, CRA etc.) would give out easily understood information about past performance & regular NAVs, so that the individual would able to make informed choices about which scheme to choose.

Next Post:
New Pesion System:        Part II- Detalied information about NPS