 NPS refers to the National Pension Scheme launched by Government of

India. The scheme came into existence on 1st January, 2004 (except for
armed forces). The National Pension scheme allows subscribers to invest
regularly in pension accounts and get returns at retirement. The main
objectives of NPS are to provide :
• Old age income and security to all citizens.
• Safe market based returns over long term investments.
• Any individual between 18 to 60 years may be part of NPS.
• All the employees of Central Autonomous Bodies who have joined on
or after the above mentioned date are mandatorily covered under NPS.
Ministry of Finance, vide Office Memorandum No 1 (2)/E.V./2007
dated June 30, 2009 has stated that these organizations may also be
permitted to shift to a defined contribution pension scheme i.e. NPS in
respect of employees who have joined before January 01, 2004.
 Pension Fund Regulatory and Development Authority (PFRDA), the
regulatory body for NPS, has appointed NSDL as Central
Recordkeeping Agency (CRA) for National Pension System.
 CRA is the first of its kind venture in India which is carrying out the
functions of Record Keeping, Administration and Customer Service for
all subscribers under NPS.
 CRA shall issue a Permanent Retirement Account Number (PRAN) to
each subscriber and maintain database of each Permanent Retirement
Account along with recording transactions relating to each PRAN.
 In NPS, a government employee contributes towards pension from
monthly salary along with matching contribution from the employer.
The funds are then invested in earmarked investment schemes through
Pension Fund Managers.
 "As per the present guidelines of Pension Fund Regulatory and
Development Authority(PFRDA), contribution towards pension will
be invested in the default schemes of three Pension Fund Managers
(PFMs), viz,
 LIC Pension Fund Limited,
 SBI Pension Funds Pvt. Limited and
 UTI Retirement Solutions Limited in a predefined proportion, which
is mentioned in the Statement of Transaction.
 Each of the PFMs will invest the funds in the proportion of 85% in
fixed income instruments and 15% in equity and equity linked mutual
funds. Hence, the employees of Central Government and Central
Autonomous Bodies need not mention the details of the schemes
while filling up the application form.“
PRAN
(Permanent Retirement Account Number)

- Subscribers are issued with PRAN

- May be accessed on line through POPs
(Point of Presence)
- You can retain PRAN, even if you change POP, job,
residence, PFM or allocation of investment.
 Central Record Keeping Agency

 NSDL (National Securities Depositories Ltd) is

Central agency that maintains all the accounts
i. e. CRA for NPS

 Acts as interface between POPs, PFMs Banks etc.

 Pension Fund Managers (PFMs) who share common
CRA infrastructure
 6 PFMs are appointed :
- SBI
- ICICI
- IDFC
- Kotek Mahindra
- Reliance capital
- UTI
 PFM would invest savings put into PRAs, dividing
into three parts:

(a) Equity (E)

(b) Government Bonds (G)
(c) Debt Instruments/ Corporate Bonds/ FDs
 Subscriber should be aged between 18 to 55 years

 Minimum Contribution is Rs 500/- Minimum four

times a year

 Minimum amount to be paid in a year is Rs 6000/-

 Long Term savings have three stages:
- Contribution
- Accumulation
- Withdrawal
 Government planned to move all long term savings into EET
(Exempt-Exempt Tax), which are exempt at the time of
contribution and accumulation of earning and taxed at
withdrawal
 This is unlike PF, EPF & GPF where all three are exempted.
 Saver not less than 35 years of age:
(i) E i. e. Equity: 1/2
(ii) G i. e. Government Bond: 1/5
(iii) C i. e. Corporate Bonds etc: 3/10
 Savor above 35 years of age:
- E portion decreases & G increases.
- By the age of 60, gradual adjustment is done and only 1/10 remains in E,
another 1/10 in corporate bonds and 80% in state & government bonds.
 This is default option which may be changed as per the wish of investor,
however not more than 50% can go into equities.
 Truly long term
 Well structured
 Low fund management fee, much less than Mutual Funds
 Offers choice between E,C & G proportion (though E is
capped at max 50%) thus diversified portfolio
 Offers mobility: Investors may change PFMs by indicating to
CRA
 Offers Convenience: Easy reach as many POPs available
 Portable: Same PRAN may be retained at the change of
address
 Only 44% of the paid work force has a bank account
hence a large chunk remain uncovered
 Annual service charges are high: enough to repel
lower income group
 Tax treatment
 Full benefits may only be availed at the age of 60 or
beyond
Intermediary Charge Head Service Charge Method of Deduction
CRA PRA Opening Charge Rs. 50/- Through cancellation of
units
Annual PRA Rs. 350/-
maintenance Cost per
account
Charge per Rs. 10/-
transaction
POP Initial subscriber Rs 40/- To be collected upfront
registration &
contribution upload
Any subsequent Rs 20/-
transition
Trustee Bank Per transaction Zero Through NAV deduction
emanating from a RBI
location
Per transaction Rs 15/-
emanating from a RBI
location
Custodian Asset serving charge 0.0075% per annum Through NAV deduction
for electronic
segment& 0.05% pa
for physical segment
PFM Charges Fund management 0.0009% p. a. Through NAV deduction
fee
 When number of accounts in CRA reaches 10 Lakh,
service charges (exclusive of all the taxes) will reduce
to Rs. 280/-per account and Rs. 6/- for charges per
transaction
 When no. of accounts reaches 30 Lakh, service
charges will reduce to Rs. 250/- (exclusive of all the
taxes) and per transaction charges to Rs. 4/-
 Mutual Fund
 Flexi-withdrawal option
 High fund management
charges
NPS
 Retirement financial
security, thus no flexi-
withdrawal is possible
 Low fund management
charges (0.0009%)
 Cost of opening and
maintaining PRA &
transaction charges on
changing address, PFMs etc
are Rs. 400/-
 If subscriber exits before the age of 60, s/he may keep
1/5 as cash & has to invest rest in annuities offered by
insurance companies
 If exits between 60-70yrs, has to use 40% of corpus to
buy annuities and may take rest of the sum in one go
or installments
 If subscriber dies, option for nominee to receive
money in a lump sum or installments
Reduction of annual Service charges:
3 Options:
- Reduction of annual service charges for
contribution at threshold & increase for those
investing large sum
- Back loaded charges: Low initially & increase as
contribution builds up
- Government to pitch in to subsidize small
investors
 Scrapping partition between civil servant pensions
and private pensions
 Higher equity investment option
 Equal tax regime
 Allow companies with more than 10 employees to opt
out of paying monthly contribution to EPFO & pay
into NPS
 Economic Times
 www.pfrda.org.in
 www.livemint.com
 www.icai.org (Report of Committee on
Insurance & Pension)
 http://finmin.nic
 www.iief.com