EMPLOYEE'S PENSION SCHEME IN INDIA

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.

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.
REGULATOR AND ENTITIES FOR NPS:
Pension Fund Regulatory and Development Authority (PFRDA) : Pension Fund Regulatory
and Development Authority (PFRDA)- External website that opens in a new window is an
autonomous body set up by the Government of India to develop and regulate the pension
market in India.

Point of Presence (POP) : Points of Presence (POPs) are the first points of interaction of
the NPS subscriber with the NPS architecture. The authorized branches of a POP, called
Point of Presence Service Providers (POP-SPs), will act as collection points and extend a
number of customer services to NPS subscribers. The Pension Fund Regulatory and
Development Authority (PFRDA)- External website that opens in a new window has
authorized 58 institutions including public sector banks, private banks , private financial
institutions and the Department of Posts- External website that opens in a new window as
Points of Presence (POPs) for opening the National Pension System (NPS) accounts of the
citizens.

Point of Presence (POP) : Points of Presence (POPs) are the first points of interaction of
the NPS subscriber with the NPS architecture. The authorized branches of a POP, called
Point of Presence Service Providers (POP-SPs), will act as collection points and extend a
number of customer services to NPS subscribers. The Pension Fund Regulatory and
Development Authority (PFRDA)- External website that opens in a new window has
authorized 58 institutions including public sector banks, private banks , private financial
institutions and the Department of Posts- External website that opens in a new window as
Points of Presence (POPs) for opening the National Pension System (NPS) accounts of the
citizens.

Who can join 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).

Procedures:
The Central Government employees can subscribe for NPS (Tier-I) through following
process:

Submit form S1 to the Drawing and Disbursing Officer (DDO) or equivalent offices.
The DDO shall provide and certify the employment details.
Subsequently, the DDO shall forward the form to the respective Pay and Accounts
Office (PAO) / District Treasury officer (DTO).
The form should be submitted to Central Recordkeeping Agency (CRA)- External
website that opens in a new window for registration.
Contributions:

For the Central Government employees contribution through their nodal office to National
Pension System (NPS) is mandatory. Every month 10% of his/ her salary (basic + DA) and
equivalent government's contribution will be invested in NPS.

Withdrawal:
As per the guidelines of Pension Fund Regulatory & Development Authority (PFRDA)-
External website that opens in a new window or Ministry of Finance- External website that
opens in a new window, the subscribers can withdraw from NPS on his/ her retirement,
resignation or death.
On retirement a subscriber would be required to invest minimum 40% of his / her
accumulated savings to purchase a life annuity from Pension Fund Regulatory &
Development Authority (PFRDA)- External website that opens in a new windowempanelled
and Insurance Regulatory and Development Authority (IRDA)- External website that opens in
a new window approved Annuity Service Providers (ASPs)- External website that opens in a
new window. Around 80% of amount has to be annuitized and remaining can be withdrawn
by the subscriber on resignation. In case of death of the subscriber, entire amount will be
handed over to the nominee.

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).

Procedure:

The State Government employees can register for NPS (Tier-I) through following process:
Submit S1 form to the Drawing and Disbursing Officer (DDO) or equivalent offices.
The DDO shall provide and certify the employment details.
Subsequently, the DDO shall forward the form to the respective Pay and Accounts
Office (PAO) / District Treasury officer (DTO).
The form should be submitted to Central Recordkeeping Agency (CRA)- External
website that opens in a new window for registration.

Contributions to NPS:
For the State Government employees contribution through their nodal office to National
Pension System (NPS) is mandatory. Every month 10% of his/ her salary (basic + DA) and
equivalent government's contribution will be invested in NPS.

Withdrawal:
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.
Benefits to Corporate:
NPS-Corporate model provides a platform to the corporate to co-contribute for the
employee's pension. The corporate can save expenses incurred on self-administration of
pension functions like setting up separate trust, recordkeeping, fund management,
providing annuity, etc. Under NPS the corporate may exercise choice of PFMExternal
website that opens in a new window, as also the investment pattern (allocation of corpus
amongst three asset classes) for its employees or leave the option to employees.
NPS is a prudentially regulated scheme with transparent investment norms, regular
monitoring and performance review of Fund Managers by NPS Trust and overall supervision
of Pension Fund Regulatory and Development Authority (PFRDA)- External website that
opens in a new window. It offers a lot of flexibility in terms of choice of investment mix
across Equity (max upto 50%), Corporate and Government bonds.
Those not financially aware or inclined can manage the funds passively by opting for Life
Cycle Fund in NPS in which the 50% equity exposure is reduced by 2% every year after the
investor turns 35 till it becomes 10%. This is in keeping with the strategy to opt for higher-
risk- higher- return portfolio mix earlier in life, when there is ample time to make up for any
possible black swan event. Gradually one can move on to fixed- return -low -risk portfolio as
one approaches retirement. Also, the choice of PFMsExternal website that opens in a new
window and the investment pattern can be changed once in a year.
Also, employer can claim tax benefits for the amount contributed towards pension of
employees upto 10% of the salary (basic and dearness allowance) as Business Expense' from
their Profit & Loss account under section 36(1) of the IT-Act.

Benefits to Subscribers:
NPS allows one to accumulate corpus from the age of 18 years for forty odd years
irrespective of geographies and employers in a single PRAN account with minimal leakages
in the form of withdrawals for competing consumption expenses, reap the compounding
effect of tax concessions and low fees, invest the corpus as per one's risk appetite with
professionally managed funds, generate optimum returns followed by a seamless transfer of
retirement wealth from the accumulation phase to any of the seven IRDA- External website
that opens in a new window regulated Annuity Service Providers (ASPs)- External website
that opens in a new window of ones' choice on reaching 60 years of age .

The additional tax benefit to the employees joining NPS as per the Income Tax Act, 1961 is
perhaps the finest USP of the scheme. A subscriber's contribution to NPS tier I upto 10% of
the salary (Basic +DA) is tax exempt under sec 80 CCD (i) with a ceiling of Rs.1.00 lacs under
section 80 CCE. Besides, the employers' contribution upto 10% of the salary (Basic +DA) is
also tax exempt in the hands of the employee under Section 80 CCD (2) of Income Tax Act.
This exemption is over and above the Rs.1.00 lac limit, thus making NPS the exclusive option
for this tax treatment.
Hence, by contributing to the NPS, the employer can provide an additional tax benefit to the
employee by simply reorganizing the salary structure without incurring any additional cost
to the company (CTC).

Procedure to subscribe:
Corporate can extend NPS to their employees by tying up with any of the approved PoPs
through MOUs. An eligible corporate entity is free to negotiate charges with PoPs where
POP-SP will undertake entire data upload as per All Citizen's model.

The Corporate can register for NPS through following process:

 Submit CHO-I form- PDF file that opens in a new window along with the details of
corporate Branch offices to the designated PoP.
Designated PoP would ensure necessary due diligence on the status of corporate as
required for Know Your Customer (KYC) verification as per AML/CFT guidelines
issued by Government of India and submit the form to Central Recordkeeping
Agency (CRA)- External website that opens in a new window duly certified.
CRA would register the corporate in the CRA system and allot entity registration
number, which would be reflected in each subscriber registration form (CS-S1)- PDF
file that opens in a new window .

Contribution to NPS:

A Corporate would have flexibility to provide investment scheme preference (PFM and
Investment choice) either at subscriber level or at the corporate level centrally for all its
underlying subscribers.
Withdrawal:

As per the guidelines of Pension Fund Regulatory & Development Authority (PFRDA)-
External website that opens in a new window or Ministry of Finance- External website that
opens in a new window, the subscribers can withdraw from NPS on his/ her retirement,
resignation or death.
On retirement a subscriber would be required to invest minimum 40% of his / her
accumulated savings to purchase a life annuity from Pension Fund Regulatory and
Development Authority (PFRDA)- External website that opens in a new windowempanelled
and Insurance Regulatory and Development Authority- External website that opens in a new
window (IRDA) approved Annuity Service Providers (ASPs)- External website that opens in a
new window. Around 80% of amount has to be annuitized and remaining can be withdrawn
by the subscriber on resignation. In case of death of the subscriber, entire amount will be
handed over to the nominee.

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:

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
 Withdrawal:

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.

Procedure to register for swayalamban Yojana:

People belonging to the unorganised sector can register for NPS Lite through following
procedure:

Contact the Aggregator and submit NPS Lite subscriber registration form with KYC
documents like identity proof and address proof.
Subscribers will receive a Permanent Retirement Account Number (PRAN) card
through an aggregator.

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.