NATIONAL PENSION SCHEME

Source: Dept. of Financial Services

The National Pension System (NPS) is being administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) set up under PFRDA Act, 2013.
NPS is a market-linked, defined contribution product.
Under NPS, a unique Permanent Retirement Account Number (PRAN) is generated and Maintained by Central Recordkeeping Agency (CRA) for an Individual subscriber.
It is a voluntary contribution retirement savings scheme.
It was launched in January 2004 for government employees and opened to all sections in 2009.
To enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.
On retirement, subscribers can withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement.
These individual savings are pooled into a pension fund and invested by PFRDA- regulated professional fund managers as per the approved investment guidelines into the diversified portfolios comprising government bonds, bills, corporate debentures and shares.

Tier-I is a pension account having a restricted withdrawal.
Tier-II is a voluntary account which offers liquidity for investments and withdrawals.
It is allowed only when there is an active Tier-I account in the name of the subscriber.
The contributions accumulate over some time till retirement grows with market-linked returns.
On exit or retirement or superannuation, a minimum of 40 per cent of the corpus is mandatorily utilized to procure a pension for life by purchasing an annuity from a life insurance company and the balance corpus is paid as a lump sum.

The government model for the Central Government Employees

It is mandatorily applicable to Central Government employees (except Armed Forces) recruited on or after 01.01.2004.
The employer contribution rate has been enhanced to 14 per cent.

State Government Employees

All-State Governments excluding West Bengal have also adopted NPS for their employees.
Government employees make a monthly contribution at the rate of 10 per cent of their salary and a matching contribution is paid by the Government.

The Corporate Model

Companies can adopt NPS for their employees with contribution rates as per the employment conditions.

The All Citizens Model

NPS allows all citizens of India aged between 18-65 years to join NPS voluntarily.
Enrolments and Contributions under NPD are made through nodal officers for Government employees, employers or PoPs for corporate employees and PoPs or eNPS for other individuals.

It is administered through an unbundled architecture involving intermediaries appointed by the PFRDA viz.
Pension Funds, Custodian, Central Recordkeeping Agency (CRA), National Pension System Trust, Trustee Bank, Points of Presence (PoP) and Annuity Service Providers (ASPs).

Access and Portability

It is ensured through online access of the pension account to the NPS subscribers through a web portal and mobile app, across all geographical locations and portability of employment.

Partial withdrawal

Subscribers can withdraw up to 25 per cent of their contributions at any time before exiting from NPS Tier-I for a maximum of three times during the entire tenure of the subscription under NPS for certain purposes specified in the regulations.
The partial withdrawals are allowed from NPS Tier-I after contributing for at least ten years and there should be a gap of a minimum of five years between successive withdrawals.

Employee's contribution towards NPS Tier-I is eligible for tax deduction under section 80 CCD (1) of the Income Tax Act within the overall ceiling of Rs.1.50 lakh under section 80 c of the Income Tax Act.
From FY 2015-16, the subscriber is also allowed tax deduction in addition to the deduction allowed under section 80CCD (1) for contribution to the NPS Tier I account subject to a maximum of Rs. 50, 000 under section 80CCD 1 (B).
Employer's contribution towards NPS Tier-I is eligible for tax deduction under Section 80CCD (2) of the Income Tax Act (14 Per cents of salary for central government employees and 10 per cent for others).
This rebate is over and above the limit prescribed under Section 80C.
Interim or Partial withdrawal of up to 25 per cent of the contributions made by the subscriber from NPS Tier-I is tax-free.
With effect from 1. 4. 2019, lump-sum withdrawal of up to 60 per cent of total pension wealth from NPS Tier-I at the time of Superannuation is tax-exempt.
Minimum 40per cent of the amount utilized for purchasing an annuity from the Annuity Service Provider, Registered and Regulated by the Insurance Regulatory and Development Authority (IRDA) and empanelled by PFRDA is also tax-exempt.

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