On the occasion of Labour Day, the pension fund regulator has offered a gift to all Indians in the form of New Pension Scheme (NPS) that will be available for all on choice basis but will be mandatory to all government employees, who have been recruited after January 01, 2004.
The Pension Fund Regulatory Development Authority (PFRDA) today (May 1) introduced a new pension scheme by extending the existing pension plans in the modified way for all. According to norms of NPS, the 50% amount of the investments are allowed to the customers to invest in the equities while the government will only review remaining 50% limit of the investment a year from now.
After the end of the year, the scheme will be reviewed by PFRDA.
Under this National Pension Scheme (NPS), the customer will get the return of his investment in two forms: first, a slice of mature income in lumpsum, second, the remaining amount in annual payment or in monthly pension form.
Now, PFRDA has also allowed the customers to manage their investment according to their own choice by investing in the equities. The subscribers have also the choice of investment to invest their entire contributed amount in lower risk options like government securities or corporate, state and municipal bonds or fixed deposit schemes.
Those who are not efficient in managing the savings can take the option of ‘default’ or ‘auto choice’ under which their savings would be managed by government appointed fund managers on the annual fee of less than one paisa per Rs.100.
The government has appointed six fund managers - SBI, UTI Asset Management, ICICI Prudential Life Insurance, Reliance MF, IDFC Mutual Fund and Kotak Mahindra.
Under the ‘auto choice’ option, the fund managers will have to follow the two pre-determined norms: first, they cannot take the subscribers amount more than 50%, second they cannot invest the amount in shares of individual companies, but only in index funds linked to the BSE's sensex or the NSE's Nifty.
According to revised ‘auto choice’ norms, ‘for the age-group of 18 to 35 years, the 50% of the subscribers’ savings can be invested in the equity, 30% in corporate bonds and the remaining 20% in government securities. From age 36 onwards, the proportion of investments in equity and corporate bonds will decrease annually while that in government securities will increase till the mix reaches 10% in equity, 10% in corporate bonds and 80% in government securities at age 55.’
The floor limit for investing in NPS has been fixed to Rs.6,000 annually while there is no upper limit for investment.
The investment and the withdrawal money will also be tax-free as PFRDA has recommended the government but the new government will take the final decision during presentation of the new full budget.
For smoothly operating the NPS, the government has given the authority to 22 Points of Presence (PoPs) including State Bank of India and all its seven subsidiaries as well as ICICI Bank and Punjab National Bank, while soon the numbers of POPs would be mushroomed across the country in phased manner, informed PFRDA Chairman D Swarup.
‘These POPs will act as the initial point of contact and collection point for all citizens except government employees desiring to open the account under this scheme. The account holders will get a Permanent Retirement Account Number (PRAN) under NPS,’ he added.
To maintain the records of investor's account, PFRDA has appointed a record keeping agency while the investors will need to interact only with the POP for opening the PRAN account and depositing their annual/monthly contributions.
NSP also allows the subscribers to switch the fund managers in case of dissatisfaction by instructing the POP to do so. The POP will inform the same to the record keeping agency, which will shift the fund to the new fund manager, selected by the investor.
Earlier in August 2008, government had decided to provide the benefit of pension scheme to all on a voluntary basis and asked to PFRDA to work on it and complete the necessary infrastructure, which is ready to function now.
The NPS facility has been in operation for central government employees since April 1, 2008.
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