1. What is retirement planning and how to ensure an independent life even when one retires from active work life?
Retirement planning involves disciplined saving, vigilant investment to build a sufficient retirement corpus and its judicious drawdown in the post-retirement phase. This is achieved by joining a pension/retirement plan at an early stage in one’s life so that when a person retires from active work life, he gets a regular stream of income in the form of pension or annuity for his life.
2. What are the pension plans available in India?
a) National Pension System (NPS) which is administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) created by an Act of Parliament.
b) Besides the NPS, some mutual funds and insurance companies also offer Pension plan or retirement plan, which are not under the jurisdiction of PFRDA.
c) Apart from this the normal retirement plan options include EPFO, Retirement gratuity etc. is offered by employers to their workers and employees.
3. What is National Pension System (NPS)?
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
- Under the NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of government bonds, bills, corporate debentures and shares. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
- At the time of normal exit from National Pension System (NPS ), the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empanelled life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
4. What are the advantages in joining National Pension System ( NPS)?
- Flexible– NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow. Individuals can switch over from one investment option to another or from one fund manager to another subject, of course, to certain regulatory restrictions. The returns being totally market-related.
- Simple – Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is structured into two tiers:
- Tier-I account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.
- Tier-II account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.
- Portable- NPS provides seamless portability across jobs and across locations, unlike all current pension plans, including that of the EPFO. It would provide hassle-free arrangement for the individual subscribers.
- Regulated- NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust.
4. What are the Benefits of National Pension System (NPS) ?
Dual benefit of Low Cost and Power of compounding – The account maintenance costs under NPS are the lowest as compared to similar pension products available in India, like retirement plans offered by Insurance companies and mutual funds. While saving for a long-term goal such as retirement, the cost matters a lot. Over 35-40 years, the charges can shave off a significant amount from the corpus.
Till the retirement pension wealth accumulation grows over a period of time with a compounding effect.The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
A flexible investment option: Subscribers have control on the choice of investment made and the fund manager who manages the investments. Subscribers can switch over from one investment option to another or from one fund manager to another subject, of course, to certain regulatory restrictions.
Tax benefits: The first benefit of the NPS consists of the income tax deduction that is available to the individuals when they make their own contribution to the fund. There is an overall limit of Rs 1 lakh for contributions under eligible investments for Section 80C, pension fund contributions (Section 80CCC) and contribution to NPS (Section 80CCD). Apart from this, if there are co-contributions from the employer, then
- Employer contributing to the NPS on behalf of an employee will get deduction from his income (i.e. employer’s income) an amount equivalent to the amount contributed or 10% of BASIC SALARY + DA of the employee, whichever is less. (Section 36 (1) (iv a) of the Income Tax Act 1961)
- Employer’s contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s80CCD(2) of the Income tax Act,1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1 lac u/s 80C of the Income tax Act,1961. This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD(2) of the Income tax Act,1961
A safe retirement fund : Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority (PFRDA).
5.What is National Pension System (NPS) Architecture ?
The NPS is a sophisticated innovation that is based on the world’s best practices in the pension sector.
- NPS (National Pension System) is based on Personal retirement accounts (PRAs) created for individual members. NPS accumulates savings into subscriber’s PRA while he is working and use the accumulations at retirement to procure a pension for the rest of his life.
- NPS (National Pension System) architecture consists of NPS Trust which is entrusted with safeguarding subscribers interests, a Central Recordkeeping Agency (CRA) which maintains the data and records, Point of Presence (POP) and aggregators as collection and distribution arms, competing pension fund managers for generating and maximizing returns on investments of subscribers, custodian to take care of the assets purchased by the Fund managers and Trustee bank to manage the banking operations.
- NPS (National Pension System) has an unbundled Architecture, with inbuilt checks and balances, where each function is performed by a different entity which is renowned in its area, to achieve maximum operational efficiency and at a low cost.
- NSDL is acting as Central Record Keeping agency (CRA) which is associated with various national level projects for recordkeeping functions.
- Renowned Financial Institutions covering Public/Private Sector Banks, NBFC, etc., acting as POPs and Aggregators.
- Funds are managed by professional Fund Managers from Public & Private sector with proven track record and as per the PFRDA approved investment guidelines. At present there are 8 pension fund managers managing the pension wealth of subscribers. They are :
Pension Fund (PF) to be incorporated by Birla Sunlife Insurance Co. Ltd
(** The Hon’ble High-Court Delhi has permitted HDFC Pension Management Company Ltd. to carry on pension fund management business till further orders.)
Q 6. What is the Exit Procedure from National Pension System (NPS) ?
A subscriber can exit from National Pension System (NPS) only in accordance with PFRDA (Exits and Withdrawals under NPS) Regulations, 2015 which are notified on 11th May, 2015. The said regulation is a comprehensive document giving details of all the benefits that can be withdrawn under the National Pension System and the applicable conditions thereof. The said regulation is available on our website atwww.pfrda.org.in.
Under National Pension System (NPS), The Central Recordkeeping Agency (CRA) has been entrusted with the responsibility of receiving instructions related to all types of withdrawals, processing and settlement of all such claims from NPS account holders under National Pension System. CRA has created a specific Claim Cell called NPS Claim processing cell (NPSCPC) for processing all claims under NPS and the contact details of the same are as given below whom the subscribers can contact for obtaining the information, forms and procedure pertaining to the Exit and withdrawal of benefits upon exit from National Pension System (NPS):
|COMMUNICATION ADDRESS OF CRA CLAIM CELL||NPS Claim Processing Cell,|
Central Record Keeping Agency, NSDL, 4th Floor, ‘A’ Wing, Trade World, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 4000013
|E-MAIL ID’S||SarvdeepS@nsdl.co.in ; Sudhanshus@nsdl.co.in|
|CONTACT PERSON / PERSONS||Mr.Sarvdeep Singh / Mr. Sudhanshu Shekhar|
|SECOND OR SENIOR LEVEL CONTACT PERSON||Mr.Prasenjit Mukherjee|
Subscribers / PAO / POP / AGGREGATOR can contact the personnel mentioned above in case of any doubt / queries on the withdrawal process or any other information pertaining to the withdrawal of benefits under NPS.
The withdrawal process for claiming the benefits under National Pension System (NPS) is common to all the subscribers i.e., Government employee subscribers and all others and involves the following broad and generic steps:
- Receipt of Withdrawal Claim Intimation from subscriber/PAO-DTO-DDO /POP/Aggregator
- Receipt of completed Documentation from Subscriber/ PAO-DTO-DDO /POP/Aggregator
- Withdrawal application form
- Original PRAN Card / notarized affidavit in case if the original is not submitted.
- Photo ID proof
- Residence proof
- Cancelled cheque/bank certificate/copy of the bank passbook with photograph and all the other details like IFS Code, Account no, Branch address and Code.
- Direct credit mandate
- Annuity application form duly filled and signed by subscriber
- Death certificate in original, if the claim is for the benefits arising out of the death of the subscriber
- Legal heir certificate wherever applicable
- Relieving letter and NOC, if applicable.
3. Receipt and Processing of Claim made, as per exit guidelines by CRA Claim Cell and resulting in intimation of deficiencies / requirements, if any
- Approval of Claim withdrawal by CRA Claims cell (60% 40% 100% etc) basing on the entitlement as per NPS Exit rules.
- Instructions to PFM and TB for crediting lump sum withdrawal.
- Forwarding Annuity form to ASP and crediting the ASP account with the pension wealth as per the instructions provided in the withdrawal application form by the subscriber.
4. Intimation to Subscriber/Govt/POP on the settlement with full details.Closure of claim as completely settled account.
Overall, the entire effort is to minimize the time required for settlement of withdrawal claims and minimize the hardships to the NPS subscribers.
Q 7 From Where can I take more information about National Pension System (NPS )?