NEW PENSION SCHEME

WHAT IS NEW PENSION SCHEME (N.P.S)

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.

• The PFRDA is the regulator of the NPS. The NPS Trust will oversee the functioning of the CRA, Trustee Bank, pension fund managers and other stake holders.

• NPS is mandatory for Central government, employees joining service after January 1, 2004. The scheme is extended to all citizens of the country from May 1, 2009, and is voluntary in nature. The new government employees will not be entitled to the benefits of the General Provident Fund (GPF).

• Government employees will contribute 10 per cent of their basic and DA to the NPS. The government will also contribute 10 per cent of its employees’ basic and DA to each of their accounts. No amount can be withdrawn from this account until the subscriber attains the age of 60 years. • Government employees can also contribute towards a tier-II account, where the government will make no contribution. Money from this account can be withdrawn anytime.

• The Drawing and Disbursing Officer (DDO) in each government office will deduct 10 per cent of the employees’ salary and DA and credit it into the respective accounts of Bank of India (Trustee Bank), along with a matching 10 per cent contribution from the government.

• Individuals other than government employees can subscribe to the NPS by approaching designated Points of Presence (PoPs), which include banks, post offices and other financial services companies. Their accounts will also be maintained by BoI. The government will not make any contribution to their accounts.

• The Trustee Bank will pass on the money deposited in the accounts of government employees and citizen subscribers to respective fund managers selected by them.

• Each NPS subscriber will be given a unique Permanent Retirement Account Number (PRAN), with the help of which the subscriber can maintain the same account irrespective of his change of job or residence anywhere in the country.

• NPS subscriber can choose from designated pension fund managers and schemes available and also shift fund managers and schemes free of cost.

• The designated fund managers invest the corpus made available to them by BoI based on the choice of schemes made by the subscribers. The fund managers are required to publish the net asset value (NAV) each day and credit the returns on the corpus into the respective accounts of subscribers.

• NSDL, which is the CRA, will maintain data of all the NPS subscribers such as their personal details, their fund managers, schemes and so on.

• The subscribers have to pay Rs.380 as an annual record-keeping charge, Rs.6 per transaction and the lowest-possible management fee of 0.09 per cent of the fund.

• The subscribers have three investment options to choose from: (1) The E option, investing index-listed stocks; (II) The G option, investing in government securities and (III) The C option, investing in liquid funds of asset management companies, bonds of PSUs and municipal corporations, and fixed deposits of banks.

• There is also the default or auto-choice option in cases where subscribers have not chosen an option. Here, the funds are invested for early years in stocks and then as subscribers’ age advances, funds are invested in less-risky bonds and other instruments. In cases where subscribers have not chosen a fund manager, such funds are equally divided among all the fund managers.

• The NPS money cannot be withdrawn prematurely, but only after attaining the age of 60 years. At 60 years, subscribers can withdraw 60 per cent of the money, while the remaining 40 per cent will be invested in an annuity plan.

SOURCE : http://personalfinance201.com/NPS/what-is-new-pension-scheme-nps.html