National Pension Scheme,Swavalamban Scheme,Pension Fund Regulatory and Development Authority (PFRDA)

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National Pension System

NPS was started by GOI to provide social security (provide financial security and stability) during old age.
PFRDA is authorized by Ministry of Finance, Department of Financial Services.
Life expectancy in India is expected to reach 75 years by 2050 from present level of 65 years. As a result number of post-retirement years increases. This necessitates pan India pension system.

GOI established Pension Fund Regulatory and Development Authority (PFRDA) in October, 2003 to develop and regulate pension sector in the country.
PFRDA is responsible for appointment of various intermediate agencies such as Central Record Keeping Agency (CRA), Pension Fund Managers, Custodian, NPS Trustee Bank, etc.
The National Pension System (NPS) was launched in 2004 with the objective of providing retirement income to all the citizens. NPS will be functioning under PFRDA.
NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.
Initially, NPS was introduced only for the new government recruits (except armed forces).
With effect from 1st May, 2009, National Pension Scheme under NPS has been provided for all citizens of the country including the unorganized sector workers on voluntary basis.

To encourage people from the unorganized sector to voluntarily save for their retirement.
It is a co-contributory pension scheme, i.e. government will contribute a sum of Rs.1,000 to each eligible NPS subscriber who contributes a minimum of Rs.1,000 and maximum Rs.12,000 per annum. This scheme is presently applicable upto F.Y.2016-17.

The subscriber will be allotted a unique Permanent Retirement Account Number (PRAN).
PRAN will provide access to two personal accounts:
Tier I Account: This is a non-withdrawable account meant for savings for retirement. Tax benefits available to type of account.
Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.
On maturity, the individual has a choice to withdraw up to 60 % of the pension fund; Balance 40% is paid out by way of monthly pension.
The minimum investment is Rs 6000 per year.

Points of Presence (POPs) are the first points of interaction of the NPS subscriber with the NPS architecture.
The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend a number of customer services.
The Pension Fund Regulatory and Development Authority (PFRDA) has authorized ~60 institutions including public sector banks, private banks, private financial institutions and the Department of Posts as Points of Presence (POPs) for opening the National Pension System (NPS) accounts of the citizens.
Central Recordkeeping Agency (CRA): The recordkeeping for all subscribers of the NPS are being handled by the National Securities Depository Limited (NSDL).
Annuity Service Providers (ASPs): Annuity Service Providers (ASPs) would be responsible for delivering a regular monthly pension to the subscriber after exit from the NPS.
Individual eligibility: All citizens of India between the age of 18 and 60 years can join NPS.

It is transparent - NPS is transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.
It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a Permanent Retirement Account Number (PRAN).
It is portable - Each employee is identified by a unique number and has a separate PRAN which is portable i.e., will remain same even if an employee gets transferred to any other office.
It is regulated - NPS is regulated by Pension Fund Regulatory and Development Authority investment norms & regular monitoring and performance review of fund managers by NPS Trust.
Cost - NPS is the cheapest among current retirement products and defined contribution schemes; It is also easy to transact in NPS.
Returns - The returns would be higher than traditional debt investments (such as post-office schemes, bank deposits etc) due to equity element in the investment.

Liquidity and rigidity issues: There are restrictions on premature withdrawal from Tier I account making the scheme very rigid.
There is an option to prematurely withdraw 20% of amount but it leads to closure of account.
Even on maturity, only 60% of fund can be withdrawn and the rest is to be compulsorily used to buy an annuity. (An annuity is an insurance product that allows you to swap your pension savings for a guaranteed regular income that will last for the rest of your life. How much you get is determined by the rate the annuity provider offers.)
Restriction on equity exposure: The exposure to equity investment is restricted at 50%. People in the young age group who can take higher risks may see this as a disadvantage as they might be losing an opportunity, as equity investments can give good returns.
Tax on maturity proceeds: The most crucial concern is in relation to taxation at withdrawal. NPS currently comes under the EET (exempt, exempt, tax) regime. Current laws state that the funds will be taxed at withdrawal. Moreover, returns from annuity insurance plan obtained after retirement will not be tax free.
No guarantee on returns: The NPS is not a defined benefit plan. It is a defined contribution plan. The returns are market linked and there is no guarantee of getting good returns.
But then the subscribers have the choice of investing 100% funds in Government securities wherein returns are more or less assured.

The AUM (assets under management) of national pension system (NPS) has crossed Rs.1-trillion-mark while the NPS subscriber base also crossed 1-crore-mark in October.

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