New Pension Scheme

New Pension Scheme (NPS) is a defined contribution scheme, its pay out depends upon the amount of contribution and the growth on the investment over a period of time for an individual while defined benefit schemes pay out is defined and is based on salary and number of years in service etc. at the time of retirement of an individual. 

At the time of normal retirement after attaining 60 years, the subscriber can withdraw 60% of the accumulated wealth and will be required to invest remaining 40% of the accumulated wealth to buy a life annuity from insurance company approved by Insurance Regulatory and Development Authority (IRDA). The mandatory provision of annuitisation will be invested to buy life annuities as per various options available to him. The amount of annuity varies depending upon the option selected by him. Registration of ASPs (Annuity Service Providers) is under process and as soon as they get registered, other details will be made available. 

In old pension scheme government pays pension after retirement as its liability while in NPS government co-contributes to employee during his service period to build up a corpus on which annuities will be paid. 

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in the Rajya Sabha today. 


Source : PIB

National Pension Scheme offers investors a low-cost avenue to save for retirement

Does retirement planning mean simply putting surplus funds into a well-guarded piggy bank and never looking at it till one reaches the age of 60? How should an investor plan his/her retirement through regular investments or via cautious savings?

And the bigger question: why should I sacrifice today to fend for tomorrow? These are never-ending questions, with no definite answers. The key point to understand is that proactive investors can make judicious investment decisions throughout their life span to create a savings pool, which comes handy post retirement.

Irrespective of the lifestyle, work profile or financial commitments, it is imperative that an investor has a strong corpus to finance his/her post-retirement needs. Building such a corpus calls for meticulous planning on the part of investors, that, too, across their lifespan.


The National Pension Scheme (NPS) provides investors across age groups (18-55) a lowcost avenue to do financial planning. Under NPS, an investor can start with an amount of Rs 6,000 annually and at the same time take exposure to multiple asset classes. The scheme would invest via professional fund managers and also provide tax benefits.

The Pension Fund Regulatory and Development Authority (PFRDA) opened this scheme for the general public in 2009. Having been in existence for over two years, the performance so far reflects that NPS has delivered returns higher than traditional saving instruments like corporate bond funds and government securities funds.

If this performance continues over longer time frames, then it can help generate sizeable corpus for retirement savings. Such performance clearly indicates the usefulness of the scheme to generate higher inflation-adjusted returns for a safe and secure retired life.

NPS is a savings-cum-investment alternative, which gives investors the best of both worlds. While it offers investors flexibility in terms of the amount they wish to invest, it also gives them an opportunity to diversify investments into different streams. Investors, based on their risk-bearing capacity, have the discretion to allocate funds towards any of three asset classes . E (equity), C (corporate bond fund) and G (government securities fund).

The risk-return tradeoff is as follows: E - high risk and high returns; C - medium risk, moderate returns; G - low risk, low returns Investors can seek a choice of six fund managers to make their investments as well as switch across fund managers.

This ensures an element of competition between fund managers and helps the scheme generate market-linked returns. Investors can either choose the asset class/classes they want to invest in the desired proportion or choose the auto choice or lifecycle fund scheme by default.

Here, at the lowest entry age (18 years), the asset allocation would be 50% in E, 30% in C and 20% in G till the investor turns 35. The ratio of investment in E and C will then decrease annually, while the proportion of G will rise. At 55 years, G will account for 80% of the corpus, while the share of E and C will fall to 10% each.

Courtesy : Economic Times

What the government must do to make New Pension System more acceptable

The recommendation of the Parliamentary Standing Committee on Finance to devise a mechanism to ensure a minimum assured return to subscribers of New Pension System (NPS) flies against the raison d'etreof the NPS, to reduce the burden of pension on government finances.

The entire rationale of the shift from the pre-NPS defined-benefit pension scheme (where pensioners are assured of a specified pension) to the defined-contribution NPS (where there is no such assurance) is to rein in the government's growing pension liabilities.

That will be defeated if the government gives an assured return, as the parliamentary panel has suggested. Yet the panel is right to point out that in the absence of a guarantee, the NPS cannot claim to provide old-age income security.

True, most countries have moved from defined-benefit to defined-contribution pensions. But there is usually some minimum social security either in the form of a Pillar I pension or some other form. In contrast, NPS subscribers in India have no such cushion.

So, the panel's suggestion that the minimum rate of return on NPS contributions should not be less than the interest rate on the employee provident fund scheme and any shortfall should be made good from the Budget, has merit. In practice, this should not be very difficult.

As long as the EPF rate is not way off-market, there is no reason why fund managers can't be asked to match it. After all, pension reform was never meant to be only about reducing the government's burden.

It was also meant to extend the coverage of a formal pension scheme to the vast majority outside the privileged class of government employees.

For them, the NPS opened a new option; especially when beginning early 2009, the scheme was opened to the non-government sector as well.

But if the scheme has found few takers to date, despite having close to 85% of the working population without any formal pension scheme, it is because it falls short on the single-most important criterion of any pension scheme, one that offers old-age security certainty.

Till then, the NPS will not find many takers, especially among those who need it most - the less well-to-do.

Courtesy:ET

Open national pension system(NPS) to EPF members

India's pension fund regulator Yogesh Agarwal is clear that the national pension system (NPS) is a sound vehicle to build a retirement nest.

Yet, it has few volunteer individual members. The reasons are well-known. There's no incentive for anyone to market the NPS, its transaction costs are high for a small contributor and the fund management charges are waferthin, depriving fund managers of incentives to perform. Agarwal is keen on a coursecorrection, but says he needs to take the government into confidence before making any changes in the incentive structure. "After all, we can't forget that 75% of the funds are from the central government quota," he says.

The NPS, set up to manage pension funds of civil servants who joined service after January 1, 2004 and later volunteer members, has over 2.4 million subscribers. "We made a fundamental mistake while extending NPS to the so-called unorganised sector or volunteer members. We forgot that someone had to play a role in marketing the product and that necessarily involved incentivisation. We simply assumed that the NPS would sell like hot-cakes. Given the state of financial literacy in the country, it was wrong to presume that investors would opt for NPS among competing financial products. There is need for an appropriate incentive structure to market the NPS," he says.

And that's essentially what apanel, chaired by the former Sebi chairman G N Bajpai, has recommended. It has suggested better financial incentives for distributors or the so-called points of presence (PoPs) - banks and financial institutions - that open NPS accounts for subscribers. Is it a good idea to pay the distributor a 0.5% commission on the amount that subscribers regularly save? Agarwal is non-committal, saying that a view is yet to be taken on the panel's recommendations. "I can't give you a time-frame as we need to consult the government before taking a decision.

But it's not necessarily the PoPs that need to be incentivised. Incentives can be given directly to the pension fund managers (PFMs) themselves. Ultimately, they are the biggest stakeholders in the whole system. At the moment, the management fee of PFMs is close to nil and, hence, they do not want to invest in promoting the scheme. Once you improve the management fees, they will have an incentive to market the scheme."

Doesn't it make sense for the government to spend money on distribution, transaction and asset management costs instead of giving a subsidy of Rs 1,000 to every voluntary NPS account? Agarwal disagrees, saying that the poor need such an incentive. Around 7.4 lakh are enrolled under NPS (Lite), meant to accumulate a retirement corpus for low-income workers.

He, however, concedes that both the volume and scale of NPS can be increased, at one stroke, if workers are allowed to migrate from the archaic Employees Provident Fund Organisation (EPFO) to the NPS.

Courtesy:ET

WHOSE WHO ON NEW PENSION SCHEME

Gist of the instructions/ Guidelines issued by Postal Directorate at three level for fruitful implementation of New Pension Scheme in respect of Employees appointed on or after 01.01.2004.

  1.    At Circle Level

1. Copy of every appointment letter and joining report of the new entrants to Government service on or after 01.01.2004 and onwards, must be endorsed to the concerned director of Accounts (Postal).


2. A monthly-consolidated statement of new entrants to Government service should be furnished to Directors of Accounts (Postal) in the Ist week of the month following the month of appointment/ Joining of the new entrants


3. The Head of Circles are also required to keep liaison so as to monitor the correctness of data regarding new entrants, their contribution and the matching contribution of the employer.


4. In case there is no appointment during a month, a NIL report must be sent to the Director of Accounts (Postal).

2.    At DDO’s level:

1. DDO’s must obtain the Names, Designation, Scale of Pay, Date of Birth, nominee for the Fund, Relationship of the nominee etc. from the entrants on their joining.


2.  DDO’s to paste one copy of the above in Service Book and another copy must be sent to Director of Accounts (Postal) concerned.


3. Ensure separate Pay Bill for new entrants.


4. First salary drawls intimation to Director of accounts (Postal) for Number of new entrants.


5. A NIL report must be furnished for non-recruitment.


6. First recovery from the salary of the month following the month of Joining of the Government servant.


7. Tier-I recovery is 10% Basic Pay+DP+DA+NPA now it is 10% of Band Pay+ Grade Pay+ DA+NPA.


8. Separate bill for drawing matching contribution i.e. Employer’s share.


9. Annual Increment is to be accounted for reckoning employees as well as Employer’s contribution.


10. DA arrear /arrear of Pay reckoned for employees and employers contribution.


11. Indicate Unique (PPAN) number now (PRAN) and month up to which government Employees as well as Employer’s Contribution transferred in LPC of the officer / officials transferred.


12. No GPF Contribution for new entrants.


13. The DDO will be held responsible for any lapse in following of the above instructions.


14.  Noting of PPAN/PRAN in Service Book of the officials.


15.  Forwarding of S1 (physical forms) for registration of subscribers with CRA to PAOs

3.    At Director of Accounts (Postal) level :

• Assignment of PRAN No. to subscribers by NSDL on receipt of first information from DDO’s well before drawl of II salary. Previously it was 16 digits unique number and now it is 12 digits unique number.


• To match the number of the new entrant’s figures on the basis of reports received with the Circle figures.


• To reconcile the difference in number of new entrants.


• To ensure correct classification of Contribution.


• Branch Officers of the concerned Postal Accounts Office should ensure that the complete information is sent and must certify the correctness of the information.


• Submission of physical form (S1) to NSDL Facilitation Centers.


• Uploading of SCF to NPS-CAN (NSDL Software) for transfer of funds through Trustee Bank.


• Strict over matched and booked figures.

Courtesy : http://ipaspassociationpunjab.blogspot.com/

NPS Standard Operating Procedure Ver2

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