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NPS- National pension scheme overview & complete details

Discussion in 'Life insurance' started by real_buzz, Jun 15, 2021.

  1. real_buzz Moderator

    Pension plans provide financial security and stability during old age when people don't have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement.

    According to United Nations Population Division World's life expectancy is expected to reach 75 years by 2050 from present level of 65 years. The better health and sanitation conditions in India have increased the life span. As a result number of post-retirement years increases. Thus, rising cost of living, inflation and life expectancy make retirement planning essential part of today's life. To provide social security to more citizens the Government of India has started the National Pension System.

    Government of India established Pension Fund Regulatory and Development Authority (PFRDA)- External website that opens in a new window on 10th October, 2003 to develop and regulate pension sector in the country. The National Pension System (NPS) was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.

    Initially, NPS was introduced for the new government recruits (except armed forces). With effect from 1st May, 2009, NPS has been provided for all citizens of the country including the unorganised sector workers on voluntary basis.

    Additionally, to encourage people from the unorganised sector to voluntarily save for their retirement the Central Government launched a co-contributory pension scheme, 'Swavalamban Scheme- External website that opens in a new window' in the Union Budget of 2010-11. Under Swavalamban Scheme- External website that opens in a new window, the 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.

    NPS offers following important features to help subscriber save for retirement:

    • The subscriber will be allotted a unique Permanent Retirement Account Number (PRAN). This unique account number will remain the same for the rest of subscriber's life. This unique PRAN can be used from any location in India.

    PRAN will provide access to two personal accounts:

    • Tier I Account: This is a non-withdrawable account meant for savings for retirement.

    • 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.
    Eligibility to join National pension scheme (NPS)
    Central Government Employees
    NPS is applicable to all new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004. Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under "All Citizen Model" through a Point of Presence - Service Provider (POP-SP).
    State Government Employees
    NPS is applicable to all the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments. Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under "All Citizen Model" through a Point of Presence - Service Provider (POP-SP).
    Corporate
    A Corporate would have the flexibility to decide investment choice either at subscriber level or at the corporate level centrally for all its underlying subscribers. The corporate or the subscriber can choose any one of Pension Fund Managers (PFMs)- External website that opens in a new window available under “All Citizen Model” and also the percentage in which the funds are allocated in various asset classes.



    Individual
    All citizens of India between the age of 18 and 60 years as on the date of submission of his / her application to Point of Presence (POP) / Point of Presence-Service Provider (POP-SP) can join NPS.

    • Procedure to Subscribe
      • Any Individual can register as a subscriber in NPS by following procedure:
        • Submit duly filled UOS S1 form to open a Permanent Retirement Account (PRA) (Tier I and/or Tier II) in NPS with other supporting KYC documents to POP-SP.
        • For only Tier II account, an individual with an active Tier I account needs to approach the associated POP-SP and submit a
      • copy of the PRAN Card along with UOS-S10 form (Tier II activation form)
        • - PDF file that opens in a new window
      • POP-SP will validate the form and provide a receipt number to the subscriber.
    • Contribution

      • To contribute in Tier I and Tier II account, a subscriber is required to make his / her first contribution at the time of applying for registration (minimum contribution Rs.500 for Tier I and Rs.1000 for Tier II) at any POP-SP with NCIS (NPS Contribution Instruction Slip) form- PDF file that opens in a new window
        The NPS subscriber is required to make contributions subject to the following conditions:
        • Minimum amount at the time of Account opening - Rs.500
        • Minimum amount per contribution - Rs.500
        • Minimum contribution per year - Rs.6,000
        • Minimum number of contributions in a year - one
        A subscriber can decide on the frequency of the contributions across the year as per his / her convenience. No maximum limit has been mandated.
        For Tier II, minimum contribution requirements are:
        • Minimum contribution at the time of account opening - Rs.1000
        • Minimum amount per contribution - Rs.250
        • Minimum number of contributions in a year - one
        • Maintain minimum balance of Rs.2000 at the end of each financial year
    Unorganised Sector Workers - Swavalamban Yojana
    A citizen of India between the age of 18 and 60 years as on the date of submission of his / her application, who belongs to the unorganized sector or is not in a regular employment of the Central or a state government, or an autonomous body/ public sector undertaking of the Central or state government, can open NPS -Swavalamban account. The subscriber of NPS -Swavalamban- External website that opens in a new window account should not be covered under social security scheme like Employees' Provident Fund and miscellaneous Provisions Act, 1952, The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, The Seamen's Provident Fund Act, 1966, The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955 and The Jammu and Kashmir Employees' Provident Fund Act, 1961.
    BENEFITS OF NPS
    Some of the benefits of the National Pension System (NPS) are:
    • 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- External website that opens in a new window, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust- External website that opens in a new window.
    Charges for National pension scheme
    CHARGES
    All the charges associated to Tier I account including Annual PRA Maintenance charge are paid by the employer. In case of Tier II account, activation charge and transaction charges are paid by the subscriber.
    The POP charges and the CRA charges are given in the table below:

    Intermediary


    CRA

    PRA Opening charges- Rs 50

    Annual PRA Maintenance cost per account-
    Rs.190

    Charge per transaction- 4


    Method of charges-
    Through cancellation of units at the end of each quarter.


    POP
    (Maximum Permissible charge for each subscriber)

    Initial subscriber registration- Rs.100
    Initial contribution upload- Rs 100
    Initial contribution upload- 0.25% of the initial contribution amount from subscriber subject to a minimum of Rs.20 and a maximum of Rs.25,000/-
    Any subsequent transaction involving contribution upload- 0.25% of the amount subscribed by the NPS subscriber, subject to minimum of Rs.20/- and a maximum of Rs.25000/-.
    Method- to be collected upfront

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