National Pension Scheme

About National Pension Scheme
The National pension System (NPS) is launched by the Government of India as a defined pension system that is contribution based since 1st January 2004. Like other developing countries, there is no system of Universal security in India to protect the elderly people from the economic deprivation. In the first step towards the reforms of pension schemes, the Indian government moved to a defined system of pension that is contribution based from a defined benefit pension. Other than offering a wide gamut to the employees of investment options, this scheme will help the Indian government to reduce the liabilities of pension. Unlike Indian government’s existing pension funds offered to the
people and assured benefits, NPS has been defined contribution and the individuals can decide about where to make their money investments. There are 2 tiers of this scheme:
Tier-I account: this account of NPS does not allows the withdrawal of the premature and is available from 1st May 2009 to all the citizens.
Tier-II account: this account permit the withdrawal for the exceptional reasons only and prior to the age of retirement.
The pension contributions since 1st April 2008 of the employees of the central government covered by the NPS are being invested by the managers of the Professional pension fund in line with the government’s investment guidelines applicable to the non-government provident funds. Majority of the state governments have been shifted to the defined based contribution system of National pension from different dates. 28 States or UT governments have also notified the NPS for the new employees. Out of these, 5 states have signed in already for the agreements with the NPS intermediaries architecture that are appointed by the Pension Fund Regulatory and Development Authority (PFRDA) for carrying out the National Pension system implementation. The other states are also in the process of documentation finalization.
Coverage and Eligibility
NPS was made entirely available to all the Indian citizens on voluntary basis and it is compulsory for the central government employees (except armed forces) appointed on or after the date of 1st January 2204. All the Indian citizens can join it, aged between 18 to 55 years.
Tier-I is compulsory for all the servants of Government joining the service of Government on or after 1st January 2004. In Tier-I, the servants of government will have to make a 10% contribution of his DP, DA and Basic pay that will be deducted every month from his bill of salary. An equal matching contribution will be made by the government. Since 1st April 2008, the contributions of the pension of the employees of the central government covered by the NPS have being invested by the managers of the professional pension fund in line with the government’s investment guidelines. However, there will not be any government contribution in return that would be deposited in the pension account of a non-with-drawable.
In addition to the pension account, every individual can also have a voluntary tier-II at his option that is a with-drawable account. No contribution will be made into this account by the government. All these assets will be managed similar to the manner of a pension. This account accumulation can be anytime withdrawn without any reason. 8 crore citizens are estimated of India who are eligible for joining NPS.
Contribution Guidelines
The PFRDA has set the following contribution guidelines:

• Minimum amount of contribution is 500 Rs per month
• Minimum contribution number: 1 annually
• Minimum contributions annually: Rs. 6000 in every subscriber account.

If the subscriber is not able to contribute the minimum amount of the contribution annually then a default penalty will be levied of Rs 100 every year and the account will also become dormant. For re-activation of the account, the amount of a minimum contribution will have to be paid by the subscriber along with the due penalty. When the value of the account falls, the dormant account will also be closed.
Investment options
Under the NPS finalized investment guidelines, the managers of the pension fund will be managing three different schemes, investing in different class of an asset. The classes are government security, instruments of credit risk-bearing fixed income and equity. The subscriber will also have an option to decide actively about how the pension wealth of NPS is to be invested in them:
E class: the investment would be in the equity market instruments and would invest in the invest funds that replicates the BSE Sensitive index or the NSE Nifty 50 index portfolio.
G class: investments would be in the securities of the government like state govt. bonds and GOI bonds.
C class: investments would be in the securities of fixed income other than the government securities.

• AMC’s liquid funds regulated by SEBI suggested by the group of experts with filters
• Scheduled commercial banks fixed deposits with filters.
• Debt securities with the maturity of tenure more than 3 years issued by the corporate bodies including the public financial institutions and scheduled commercial banks.
• Credit rated PSU bonds/ Public financial institutions
• Credit rated Infrastructure bonds/ Municipal bonds

Class	Till the of age 35 years	At age of 45 years	At age 55 Years
E	50%	30%	10%
C	30%	20%	10%
G	20%	50%	80%