national pension scheme
DESCRIPTION
National Pension SchemeTRANSCRIPT
Concept ofNational Pension System
Defined Contribution based Pension System initiated by Government of India
Individual who joins NPS is called Subscriber to NPS
Subscriber can join NPS through any of the registered Point of Presence (POP) / Service Providers (POP – SP)
A unique Permanent Retirement Account Number (PRAN) is allotted to each subscriber by Government of India
PRAN gives access to two types of accounts to the subscriber – Tier – 1 and Tier 2 NPS account
Contributions to NPS accounts gets invested through PFRDA appointed Pension Fund Manager (PFM)
On maturity, the Pension Wealth can be used by the subscriber to purchase an Annuity by Annuity Service Providers
Concept of National Pension System
Unique features of NPS
Voluntary investment option
Unique PRAN, Portable across jobs and geographies
Online accessibility of funds and investment details
Choice of Funds and Fund Managers
Option of “Life Cycle Fund” as scheme preference
Option to switch amongst the Funds, Fund Managers and Scheme Preference
Market Based Returns
Safeguarding the investment through “Auto Rebalancing of Portfolio” technique
Unmatched Tax Benefits
NPS Product Details
*Unit holding as on 31st March of next year should be Rs.2000
Two Tier Structure
Particulars Tier I Tier II
Option of Selection of the Account Mandatory Optional
Minimum Contribution at the time of A/c Opening Rs.500 Rs.1,000
Minimum Amount for Subsequent Contribution Rs.500 Rs.250
Minimum Contribution required per year Rs.6,000 Rs.2,000*
Minimum Number of Contribution required Per Year 1 1
Withdrawal option available No Yes
NPS gives investors an option to invest according to their own choice and risk appetite among the asset classes of equity, corporate bonds and government securities
This is known as “Active Choice” scheme preference
Subscriber gets the option to change the Asset Allocation Pattern once in a financial year
Asset Class Limit of Exposure
Equity (E) 50%
Corporate Bonds (C) 100%
Government Securities (G) 100%
Fund options (Asset Classes)
If the individuals are unsure about their investment strategy, they can go for the default option and the funds will be managed by the fund managers on the pattern of a lifecycle fund (known as Auto Choice)
Subscriber can shift from life cycle fund (Auto Choice) to Active Choice and vice – versa once in a financial year
Age (in Years)Exposure in
Asset Class EExposure in
Asset Class CExposure in
Asset Class G
Upto 35 50% 30% 20%
36 48% 29% 23%
37 46% 28% 26%
- - - -
55 and Above 10% 10% 80%
Life Cycle Fund option
Auto Rebalancing of Portfolio
In order to safeguard the investment from excessive exposure to scheme E, rebalancing of assets takes place in the following manners
If the scheme preference is Active Choice
• Rebalancing is carried out once in a year on the date of birth of the subscriber
• The excess amount (over 50%) is shifted towards scheme C and scheme G in the proportion already chosen by the subscriber
If the scheme preference is Auto Choice
• Dynamic (System driven) rebalancing across schemes as per the age wise allocation ratio is carried out on the date of birth of the subscriber
Subscriber can select any of the below mentioned Pension Fund Managers to manage his / her corpus in Tier I and Tier II accounts
ICICI Prudential Pension Funds Management Company Limited
Kotak Mahindra Pension Fund Limited
Reliance Capital Pension Fund Limited
SBI Pension Funds Private Limited
UTI Retirement Solutions Limited
Subscriber can change the Fund Manager once in a financial year
Pension Fund Manager
On death of the subscriber, nominee / legal heir to the subscriber can claim 100% of the Corpus
Once the withdrawal option is selected, PRAN will be closed and subscriber is not allowed to join NPS again
Vesting Options for Tier I account
Particulars Vesting before attaining the age 60
Vesting after attaining the age 60
Purchase of Annuity Minimum 80% of Pension Wealth to be used to buy Annuity
Minimum 40% of Pension Wealth to be used to buy Annuity
Amount allowed for withdrawal
Balance Pension Wealth is allowed for withdrawal
Balance Pension Wealth is allowed for withdrawal
Mode of withdrawal of lump sum amount
In Lump sum Either in Lump sum or Phased withdrawal option where
minimum 10% of the Pension Wealth should be withdrawn each year up to the age 70
Annuity Start Age Immediate after vesting is exercised Immediate after vesting is exercised
*Subject to min charge of Rs.20 and max charge of Rs.25K per PRAN per Transaction / Contribution
Schedule of Charges (net of Service Tax)
Intermediary Charge Head Service Charge
POP
Subscriber Registration Charge (One Time) Rs.100
Contribution Charge (Each Contribution) 0.25%*
Non – Financial Transaction Charge (Each Transaction) Rs.20
CRA
PRA Opening Charge (One Time) Rs.50
PRA Maintenance Charge (Per Annum) Rs.225
Transaction Charge (Each Transaction) Rs.5
PFM Investment Management Charge (Per Annum) 0.25%
Custodian Asset Servicing Charge (Per Annum) 0.0075%
Illustration – Yield Net of Charges
Age of the Subscriber (Yrs) 40
Rate of Return 10%
Maturity Age (Yrs) 60
Annual Contribution*
Pension Wealth
Yield Net of Charges
Cost of Operation
60,000 3,608,724 9.62% 0.38%
75,000 4,515,087 9.63% 0.37%
100,000 6,025,693 9.64% 0.36%
200,000 12,068,115 9.65% 0.35%
*Mode of Contribution: Annual
Fund Performance (as on 31st Dec’ 2012)
PFM3 Months (%) 6 Months (%) 1 Year (%) Since Inception*
E C G E C G E C G E C G
UTI 3.36 2.63 3.52 11.20 7.30 6.61 26.15 13.16 12.87 9.34 9.20 7.74
ICICI 3.47 2.63 3.63 12.59 7.79 6.61 29.79 14.37 13.05 10.23 11.54 7.89
RELIANCE 3.56 2.96 3.52 11.88 8.19 6.67 27.19 13.96 13.80 8.80 8.66 7.30
KOTAK 3.72 2.76 3.37 12.17 7.56 6.46 29.30 14.74 13.13 8.09 11.74 7.98
SBI 3.41 2.43 3.61 11.77 7.79 6.71 28.49 15.53 13.42 5.33 12.20 10.46
Industry Av 3.50 2.68 3.53 11.92 7.73 6.61 28.18 14.35 13.25 8.36 10.67 8.28
Sensex 3.20 11.65 25.70
Nifty 3.26 11.87 27.70
*Since May’2009
Returns for less than one year period is absolute and not annualized
Tax Benefits &
Treatment
For Employee
Employee’s contribution to Tier – 1 NPS account is eligible for tax benefit u/s 80CCD (1) of Income Tax Act, 1961, up to 10% of the salary (Basic and Dearness Allowance)
Employer’s contribution to Tier – 1 NPS account of the employees is eligible for additional tax benefit u/s 80CCD (2) of Income Tax Act, 1961 up to 10% of the salary (Basic and Dearness Allowance)
The tax benefits u/s 80CCD (2) can be enjoyed by the employee over and above the tax benefits on the contributions towards Employee Provident Fund, Superannuation and Gratuity schemes
Tax Benefits on Investment
Tax Treatment on Withdrawal
Tier – 1 NPS Account
Currently NPS has Exempt – Exempt – Taxation (EET) status, however as per the proposed Direct Tax Code (DTC), NPS will have Exempt – Exempt – Exempt (EEE) status
Taxation under EET status
• Amount used to purchase annuity is exempt
• Amount withdrawn in lump sum is taxable subject to exemption u/s 10 (10 A)
Tier – 2 NPS Account
Withdrawal from Tier – 2 NPS Account is likely to be subject to Capital Gain Tax
Grievance Redressal Mechanism
Grievance Redressal Mechanism
CRA Call Center: subscriber can call on 1-800-222080 and post authentication using T-PIN grievance is registered. A Token No is allotted by Customer Care Executive
Web based interface: subscriber can log in to https://cra-nsdl.com using the I-PIN and register the grievance. A Token No is displayed on screen for future reference
Physical forms: Subscriber can submit the grievance in a prescribed format to POP / POP-SP who will forward it to CRA Central Grievance Management System (CGMS). The Token No will be e-mailed to the registered ID of the subscriber for future reference
How to Join NPS - Corporate and Employee
Employee needs to submit the following documents to Kotak Bank branch / representative in order to get registered for NPS
Duly filled Composite Registration Form (CS – S1)
KYC Documents (Address and Identity proof)
Initial Contribution Amount
Rs. 500 if opted for Tier – 1 account
Rs.1500 if opted for both Tier – 1 and Tier – 2 accounts
After the PRAN is generated, NSDL sends ‘Welcome Kit’ to employee / corporate address containing
the PRAN Card,
Master Sheet (the complete information provided by the employee in the form)
I – Pin and T – Pin
Employee joining NPS
Thank You