National Pension Scheme

NEW PENSION SCHEME

By SatyaRegd. No.- 11011011

INDEX

Introduction Features of NPS Benefits under NPS Who can join ? Who cannot join ? Accounts under NPS How much a subscriber needs to contribute ? NPS structure Investment options and Structure Getting your money out ? Taxation benefits Central Record-keeping Agency (CRA) Conclusion

INRODUCTION

Its a pension system recently launched by Govt. of India from 1st April, 2009.

You can regularly invest your money in this and get a lump sum at your retirement and a fixed monthly income for the lifetime. It will work almost the same way as Private Pension Schemes.

NPS is now available for all citizens of India with effect from May 1, 2009.

SALIENT FEATURES OF NEW PENSION SCHEME

Applicable to Govt. servants joining service on or after 1-jan-2004.

The scheme will be a defined contribution scheme as against the present defined benefit scheme.

Existing pension scheme and GPF will no longer be applicable for new entrants or Govt. servants.

Contains to Tiers: Tier I and Tier II PFDRA to be appointed to regulate and

develop the pension market.

SALIENT FEATURES ..

Central record keeping agency(CRA) and pension fund managers to be appointed.

Defined contribution based pension system. Offers investment options to employees. How money is invested will depend upon

your own choice. Available to all citizens of India on voluntary

basis and is mandatory for employees of central government.

BENEFITS OF NPS

It is voluntary- NPS is open to every Indian citizens. Also u can choose the amount you want aside and save every year.

It is simple- anyone can easily open an account with any one of the POP and get a PRAN.

It is flexible It is portable Withdrawn any time before 60 years of age. Tax benefits (Under section 80 CCD)

…

WHO CAN JOIN ? A citizen on India,

whether resident or non resident.

You should be between 18-55 years of age.

You should comply with the KYC norms as detailed in subscriber registration form.

WHO CANNOT JOIN ?

Individuals who are not granted an ‘order of discharge’ by court.

Pre existing account holders under NPS

ACCOUNTS UNDER NPS

Tier I

It is compulsory. Cannot be withdrawn during service. Matching contribution by Government. Payment only at the time of exit or after 60

years. Employee’s contribution @ 10 % of pay + DA

.

…

Tier II

It is optional. No ceiling on the contribution by govt.

employees. No contribution by the Government. Can be withdrawn at any time. Active tier-I account is necessary to open it.

HOW MUCH DOES A SUBSCRIBER NEED TO CONTRIBUTE

You are required to make your first contribution at the time of applying for registration at any POP.

You are required to make contributions subject to the following conditions:

Minimum amount per contribution is – Rs.500 Minimum contribution per year is – Rs.6,000 Minimum no. of contribution in a year is only

four times.

INVESTMENT OPTIONS AND STRUCTURE

The NPS offers you two approaches to invest your Money:

Active choice- Individual Fund Auto choice- Lifecycle Fund

ACTIVE CHOICE- INDIVIDUALS FUNDS

You will have the option to actively decide as to how your NPS pension wealth is to be invested in the following three options:

Asset class E – Investment in equity market instruments

Asset class C – Investment in fixed income instruments other than Govt. Securities.

Asset class G – Investments in Govt. securities.

AUTO CHOICE – LIFE CYCLE FUND It is a easy option for investment in NPS. This option is basically for those participants

or Individuals who don’t have the required knowledge of their NPS investments.

In case you are unable to exercise any choice as regards assets allocation, I that case your fund will be the invested in accordance with the auto choice option.

DIFFERENCE

Employees Pension Scheme:

Limited investment options.

Only 1 account.

In this scheme the contribution of employees is 8.33% and Government contribution is 1.16%.

New Pension Scheme:

More investment options.

Contains two accounts Tier 1 and Tier 2.

Not mentioned any specific rate under NPS.

TAXATION BENEFITS

Yes, Under Section 80CCD of the Income Tax Act investments of up to Rs 1 lakh in the NPS can be claimed as tax deductions. Readers should remember that this Rs 1 lakh limit is not over and above the Rs 1 lakh limit available under Section 80C.

In fact, the combined limit of investments made under Section 80C, 80CCD and section 80CCC (for investments made into pension plans of insurance companies) is Rs 1 lakh.

WHO WILL BE THE CRA ??

National securities depository limited (NSDL) has been appointed as the CRA.

The recordkeeping , administration and

customer service functions for all subscribers of the NPS shall be centralized and performed by the CRA.

The CRA shall also provide periodic, consolidated PRAN statements to each subscriber.

SERVICE PROVIDED BY CRA (NSDL)

Sending annual account statement to subscribers.

Providing new investment schemes and confirmation report.

Also provide retirement account information. eg. Pension wealth accumulated their PRA. Or Amount that can be withdrawn by

subscriber in lump sum.o Web enabled services- Like history of

transactions of PRA.

CONCLUSION

As per my views , Its a good initiative from Govt. to introduce a Pension Scheme which will give common people a chance to invest in Pension schemes which is from Govt.

Negative point at this point is that the amount

received at the end would be taxable which can have adverse affect on the return potential .

Thank You !!