What is New Pension Scheme?
What is the Product?
New pension Scheme is a pure defined contribution product. A subscriber can choose the fund option as well as the fund manager. The subscriber gets a retirement corpus when he/ she turns 60.
Permanent Retirement Account Number: (PRAN)
The PFRDA has appointed 22 points of presence (PoPs) which are mainly banks and 6 Pension Fund managers. (Interim arrangements have been made till appointments) . The branches of PoPs are called PoP Service providers. These PoP service providers act as initial points of contact and also collection point, for all citizens who need to get a Permanent Retirement Account Number or PRAN. This number is needed under the NPS
Who is eligible?
Resident & Non Resident Indians between the age of 18-55 years are eligible for new pension Scheme.
Where to open a account?
An account can be opened & operated from anywhere in India. If a subscriber changes a job & location, the pension fund manager can also be changed. To open an account one can approach any branch of bank designated by PFRDA.
The contribution amount is
- Minimum Rs. 600 per contribution
- Minimum per year Rs. 6000
- Minimum number of contributions per year 4
The subscriber gets the retirement corpus when he/ she turn 60, which is the normal age of retirement. On turning 60, he/she has to annuitize (convert a sum of money into a series of payments) at least 40% of pension wealth. The remaining 60% can be withdrawn in lump sum.
Tier I and tier II Accounts:
There are two separate accounts in New Pension Scheme.
- Tier I
The tier I account is the basic account in which withdrawals are not allowed till the age of 60. Employee’s contribution is @ 10% of pay +DA+DP and involves matching contribution by Govt.Payment only at the time of exit or after 60 years.
- Tier II
In the tier II account from which withdrawals are allowed. 20 % of the sum is withdrawn in lump sum and 80% will have to be annuitized. There is no contribution by the government.
One can invest in NPS in two ways:
Active Choice: The subscriber can allocate his / her funds across 3 fund options:
- Equity (E) : 50% of portfolio is allowed.
- Fixed Income instruments other than government securities (C)
- Government Securities (G)
In this approach, the funds of a subscriber automatically begin with a maximum equity exposure of 50% till the age of 35 and then regularly tapers off to 10% by age of 55. This is aimed to provide the customer stability as he / she approaches the maturity age.
The contributions to New pension scheme get benefit under section 80C. At the time of withdrawl, the lump sum would be taxable as per the slab of the subscriber.
Latest Decision: Swavalamban Scheme
A new initiative, ‘Swavalamban’, will be implemented for those who join the NPS with a minimum contribution of Rs 1000 and a maximum contribution of Rs 12000 per annum during financial year 2010-11, wherein the government will contribute Rs 1000 per year to each NPS account opened in 2010-11.