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  • Major initiative undertaken by Government of India to ensure old age income security /provide adequate retirement income.
  • Well regulated environment [Pension Fund Regulatory and Development Authority (PFRDA)as regulator & Board of NPS Trust as Trustees]to oversee the overall function of pension funds to safeguard the interest of subscribers.
  • Pension System based on defined contribution to provide sustainability.

What are the salient Features of NPS?

National Pension System (NPS) is a defined contribution based retirement investment product. NPS offers two types of accounts to its subscribers, namely Tier I and Tier II. While Tier I account is mandatory for opening of an NPS account, opening of Tier II account is optional and to be decided by the subscriber basing on his requirements. However, an active Tier I account is a pre-requisite for opening a Tier II account.

Tier-I account:

You shall contribute your savings for retirement into this non-withdrawable account. This is your retirement account and you can claim tax benefits against the contributions made subject to the Income Tax rules in force.

Tier-II account:

This is a voluntary savings facility. You will be free to withdraw your savings from this account whenever you wish. This is a not a retirement account and you can’t claim any tax benefits against contributions to this account.

Key features of Tier-II account

No additional CRA charges will be levied for account opening and annual maintenance in respect of Tier II. However, CRA will charge separately for each transaction in Tier II, the charges being identical to the transaction charge structure in Tier I.

There is no limit on the number of withdrawals from Tier II account.

There will be facility for separate nomination and scheme preference in Tier II.

There will be facility of one-way transfer of savings from Tier II to Tier I but funds cannot be transferred from Tier I to Tier II. Bank details will be mandatory and no separate KYC required for opening a Tier II account.

What are the unique benefits the subscriber can enjoy by joining NPS?

It is voluntary - NPS is open to every Indian citizen. You can choose the amount you want to set aside.

Low Cost - NPS is considered to be world’s lowest cost pension scheme. Other handling and administrative charges and fund management fee are lowest.

It is simple - all you have to do is to open an account with any one of the POPs and get a PRAN.

It is flexible - You can choose your own investment option and Pension Fund Manager or select Auto option to get better returns.

It is portable - You can operate your account from anywhere in the country and you can pay your contributions through any of the POP-SPs irrespective of the POP-SP branch with whom you are registered, even if you change your city, job etc.

Prudentially Regulated – Transparent investment norms, regular monitoring and performance review of Fund Managers by NPS Trust.

What are the choices that the subscriber has with respect to administration of his investments?

Under NPS the subscriber has choice of choosing various functionaries for administration of investment of his funds and the details are as follows:

The point of presence (POP) through whom he wishes to transact the NPS

The Pension Fund Manager (PFM) whom the subscriber wants to manage his investments under NPS.

The Investment scheme in which he wishes to invest his investments from the available options.

The type of annuity and the Annuity Service Provider (ASP) from whom the subscriber wishes to purchase the annuity, at the time of exit from NPS.

For the convenience of those subscribers who are not in a position to choose a particular investment scheme/option, the NPS provides default options of asset allocation for safeguarding the interests of the subscribers.

What investment choice does the subscriber have?

Under NPS, how your money is invested will depend upon your own choice. NPS offers you a number of fund managers and multiple investment options to choose from. In case you do not want to exercise a choice, your money will be invested as per the "Auto Choice" option, where money will get invested in various type of schemes as per your age.

The NPS offers you two approaches to invest your money:

Active choice - Individual Funds (Asset Class E, Asset Class C, and Asset Class G )

Auto choice - Lifecycle Fund

Active choice - Individual Funds

You will have the option to actively decide as to how your NPS pension wealth is to be invested in the following three options:

Asset Class E - investments in predominantly equity market instruments.

Asset Class C- investments in fixed income instruments other than Government securities.

Asset Class G - investments in Government securities.

You can choose to invest your entire pension wealth in C or G asset classes and up to a maximum of 50% in equity (Asset class E). You can also distribute your pension wealth across E, C and G asset classes, subject to such conditions as may be prescribed by PFRDA. In case you decide to actively exercise your choice about investment options, you shall be required to indicate your choice of Pension Fund Manager (PFM) from among the eight Pension Fund Managers (PFMs) appointed by PFRDA. In case you do not indicate any choice of PFMs, please note that it is deemed that you have consented to opting for the default option for the PFM as provided by PFRDA and whereby SBI Pension Funds Private Limited would become the default PFM.

While exercising an Active Choice, remember that your investment allocation is one of the most important factors affecting the growth of your pension wealth. If you prefer this “hands-on” approach, keep the following points in mind:

•Consider both risk and return. The E Asset class has higher potential returns than the G asset class, but it also carries the risk of investment losses. Investing entirely in the G asset class may not give you high returns but is a safer option.

•You can reduce your overall risk by diversifying your investment. The three individual asset classes offer a broad range of investment options, it is good not to put “all your eggs in one basket.”

•The amount of risk you can sustain depends upon your investment time horizon. The more time you have before you need to withdraw from your account, the more is the risk you can take. (This is because early losses can be offset by later gains.)

•Periodically review your investment choices. Check the distribution of your account balance among the funds to make sure that the mix you chose is still appropriate for your situation. If not, rebalance your account to get the allocation you want.

Auto choice - Lifecycle Fund

NPS offers an easy option for those participants who do not have the required knowledge to manage their NPS investments. In case you are unable/unwilling to exercise any choice as regards asset allocation, your funds will be invested in accordance with the Auto Choice option. In this option, the investments will be made in a life-cycle fund. Here, the fraction of funds invested across three asset classes will be determined by a pre-defined portfolio. At the lowest age of entry (18 years), the auto choice will entail investment of 50% of pension wealth in “E” Class, 30% in “C” Class and 20% in “G” Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in “E” and “C” asset class will decrease annually and the weight in “G” class will increase annually till it reaches 10% in “E”, 10% in “C” and 80% in “G” class at age. Like the active choice, you must choose one PFM under the auto choice. In case you do not indicate any choice of PFMs, please note that it is deemed that you have consented to opting for the default option for the PFM as provided by PFRDA and whereby SBI Pension Funds Private Limited would become the default PFM.

Tax Benefits

Tax benefit to employee:

Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution as under: -

(a) Employee’s own contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1 lac under Sec 80 CCE.

(b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs. 1 lac provided under Sec 80 CCE. Tax benefit for self-employed:

Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1 lac under Sec 80 CCE. Tax benefits would be applicable as per the Income Tax Act, 1961 as amended from time to time.

Pension Fund Managers (PFMs)

For managing the pension funds of subscribers, Pension Fund Managers are appointed/granted registration by PFRDA after scrutiny of their credentials as per the “PFRDA (Registration of Pension Funds for Private Sector) Guidelines -2012”. Subscribers have the option of selecting any one PFM registered with PFRDA and also have the option to change the PFM once in a year free of charges. The PFMs are required to invest the funds as per the guidelines issued by PFRDA from time to time. At present, the following 8 PFMs are appointed/granted registration by PFRDA to manage the pension funds of subscribers under the private sector.

1. SBI Pension Funds Pvt. Ltd.

2. LIC Pension Fund Ltd.

3. UTI Retirement Solutions Ltd.

4. Kotak Mahindra Pension Fund Ltd.

5. Reliance Capital Pension Fund Ltd.

6. ICICI Prudential Pension Fund Management Company Ltd.

7. HDFC Pension Management Company ltd.

8. DSP BlackRock Pension Fund Managers Private Ltd

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