List of New Pension System (Nps) for Non-Government Employees

New Pension System (Nps) for Non-Government Employees

The Structure of the scheme and entities involved are as follows:

The New Pension System is administered by the Pension Fund Regulatory Development Authority (PFRDA).

A Central Recordkeeping Agency (CRA) maintains all the records (like account balances) related to the NPS. National Security Depository Limited (NSDL) has been selected as the nationwide CRA for the New Pension System.

There are six Pension Fund Managers (PFMs). The PFM are responsible for investing funds and generating returns from them.

There are also entities called Points of Presence (PoPs). The PoPs are responsible for the sales and marketing of the NPS. (These are similar to the distributors of mutual funds).

List of Pension Fund Managers (PFMs)

ICICI Prudential Life Insurance Company Limited

IDFC Asset Management Asset Management Company Limited

Kotak Mahindra Asset Management Company Limited

Reliance Capital Asset Management Company Limited

SBI Pension Funds Limited

UTI Retirement Solutions Limited

Features and Options of the Scheme

Permanent Retirement Account Number (PRAN)

Each investor in the New Pension Scheme (NPS) would be allotted a Permanent Retirement Account Number (PRAN). This would be a unique identification number that would be used to identify an investor irrespective of his PFM.

Investment Options Available to an Investor

Investors would get multiple options for investing their funds in the NPS. These options span the entire risk spectrum from risky to risk-free. There are three investment options

Growth option: A growth option would be an equity based option, wherein the investments would be primarily done in equities. This option has the potential to give the highest returns but it carries a higher risk. The investment would be passive. There wouldn’t be any active buying and selling of stocks based on the fund manager’s analysis. Instead, funds would be invested only in the 50 stocks comprising the NSE’s NIFTY stock index. This option is most suitable for young people who are just starting their careers. This would also be suitable for middle-aged people who do not have many dependents.

Moderate option: The funds would be invested in corporate debt and other fixed income instruments. This option has the potential to give moderate returns but it carries a moderate risk. This option is most suitable for risk-averse young people and for mid-career people. This would also be suitable for some of the more adventurous (risk taking) people nearing retirement.

Cautious option: The most cautious option would be government security based. Here, investors’ money would be invested in government securities. These securities are risk free and hence this option would give risk free returns. The returns are expected to be the lowest among all three options. This option is most suitable for employees approaching their retirement and risk-averse mid-career employees.

Investors would get an option to allocate their funds between these three options in any proportion they prefer. Thus, they can create a balance between the risky and risk-free options based on their own risk profile. If they do not want to allocate their funds, there is an auto choice feature. Here, investments would be allocated among the three options depending on their age. Thus, when they are young, more investment would be made in the equity based fund, and when they are old, more and more funds would be invested in the low risk government securities based fund.

Switching Options: Investors could periodically reallocate their funds among the three options once in a year. Also, they could switch the fund managers (PFMs) periodically. That is, they would be able to move the management of their funds from one PFM to another. This process is expected to be simple, as all the records are centrally kept by the CRA and the Permanent Retirement Account Number (PRAN) would be investors’ identification number across all Pension Fund Managers (PFM).

Costs and Fees involved in the scheme

The management fee for NPS is less than 0.01% per annum.

The annual record keeping fee for NPS would be just ` 280.

Transaction fee is 6 for each transaction.

Defined Contribution system: The periodical payment is fixed, but the pension amount is not fixed. It totally depends on the returns on investment. This scheme is a defined contribution scheme, without the benefit not being defined.

Maturity withdrawals: Investor can get money only at the age of 60 years. Early withdrawals are not allowed except for marriage of sons/daughters and purchase of house. Investor can get only 60% of the corpus as lump sum and remaining 40% should be invested in an annuity (accumulated corpus), which is used to provide a fixed monthly amount.

Coexist with other schemes (EPF / EPS): New Pension System (NPS) would not replace any existing scheme like the Employee Provident Fund scheme or the Employee Pension Scheme.

Income tax exemption: The amount of contribution to NPS is exempted from income tax under section 80C and also the interest or profit earned on the investment in NPS would not be taxed in the year in which it is earned; but, the amount would be taxed at the time of withdrawal.