NATIONAL PENSION SYSTEM

NATIONAL PENSION SYSTEM

1.Context

Systematic Lump Sum Withdrawal (SLW) will allow systematic payment of NPS corpus on a monthly, quarterly, half-yearly or annual basis for 75 years.

2.Pension Fund Regulatory and Development Authority (PFRDA)

It is the statutory Authority established by an enactment of the Parliament, to regulate, promote and ensure orderly growth of the NPS.
It works under the Department of Financial Services under the Ministry of Finance.

2.1.Functions

It performs the function of appointing various intermediate agencies like pension Fund Managers, the Central Record Keeping Agency (CRA) etc.
It develops, Promotes and regulates the pension industry under the NPS and also administers the APY.

3.National Pension System

The Central Government introduced the National Pension System with effect from January 2004 (except for armed forces).

In 2018 to streamline the NPS and Make it more attractive, the Union Cabinet approved changes in the scheme to benefit central government employees covered under NPS.

It is being implemented and regulated by PFRDA.

National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS.

3.1.Structure

It is structured into two tiers:

Tier-I account

This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.

Tier-II account

This is a voluntary withdrawable account which is allowed only when there is an active Tier-I account in the name of the subscriber.

The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.

3.2.Beneficiaries

NPS was made available to all Citizens of India in May 2009.

Any individual citizen of India (both resident and Non-resident) in the age group of 18-65 years can join NPS.

OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) cardholders and Hindu Undivided Family (HUFs) are not eligible for the opening of NPS accounts.

4.NPS Withdrawal Rules

Under National Pension System rules, a subscriber is required to buy an annuity for at least 40 per cent of the total corpus while the remaining amount can be withdrawn as a lump sum in a single tranche or on an annual basis.
Subscribers can even opt to buy an annuity with 100 per cent of the amount accumulated in his/her NPS account through years of investment.
If the new proposal of "systematic Lump sum Withdrawal (SLW) by PFRDA is accepted then NPS subscribers will have more flexibility to optimise the use and returns from their retirement corpus.

5.Systematic Lump Sum Withdrawal

SLW will allow NPS subscribers to withdraw their lump sum amount periodically after making a one-time request.
To ease the process of lump sum withdrawal, the regulator has proposed that "lump sum can be paid systematically on a periodical basis viz monthly, quarterly, half-yearly or annually of a period till 75 years as per the choice of the Subscriber.
Further, the process can be automated based on the one-time request that can be captured online/ offline.

After the subscriber makes the one-time request for SLW, there won't be any "Further contribution in Tier-I and the amount in Tier-I would be earmarked for Annuity and Lump sum as per exit regulations. Partial withdrawal won't be allowed post setting up of SLW".

For Tier-II NPS account, the regulator has proposed that SLW can be availed at any point of time i.e. even before attaining the age of 60 years.

6.Benefits of SLW

The regulator has outlined four major benefits of SLW for subscribers

According to the proposal, the choice of SLW at periodical intervals through automation would add flexibility, provide liquidity and hence optimize the retirement benefits.
It will also enable the subscribers with periodical withdrawal to manage their needs and requirement.
Further, subscribers would be able to participate and reap market-linked investment gains for the amount not withdrawn which continue to lie in PRAN and remain invested as per the choice of investment.
The SLW facility will also " reduce the risk of reinvestment associated with one-time lump sum withdrawal even though the option shall continue".

7.PFRDA Regulation

The PFRDA has decided to allow retired Government and Corporate sector NPS subscribers to continue their existing investment pattern and Pension Fund (PF) choice upon shifting to the All Citizen Sector.
The regulator has also decided to allow Government Subscribers to continue to contribute to their NPS account seamlessly even after their superannuation without the need of submitting any request in this regard.

8.Changes

Subscribers have shown reluctance to shift to the All citizen sector, since in certain cases, the scheme/ investment option made available to the subscriber during their employment may not be available in case they shift to the All Citizen Sector.
Currently, such Inter Sector Shifting (ISS) may entail changes in PF/ Investment.

The subscribers will be free to choose any other investment pattern and PF also, rather than continuing the same investment pattern post the inter-sector shifting.

Government Sector Subscribers can continue to contribute to their NPS account seamlessly even after their superannuation without the need of submitting any request in this regard.

9.Annual Maintenance charges and Transaction Charges

PFRDA said that Annual Maintenance Charges (AMC) and Transaction Charges of CRA for the subscribers post their resignation/ retirement will be recovered from their respective PRANs from the subsequent quarter of their retirement/ resignation.

For Prelims & Mains

For Prelims: PFRDA, NPS, AMC, PF, ISS, SLW

For Mains:

1.What is National Pension System and discuss the new withdrawal rules (250 words)

2.What is SLW and explain its Benefits (250 words)

3.What is PFRDA and Critically analyse the functions and new regulations of PFRDA (250 words)

UPSC Article

NATIONAL PENSION SYSTEM

1.Context

2.1.Functions

3.National Pension System

3.1.Structure

Tier-I account

Tier-II account

3.2.Beneficiaries

4.NPS Withdrawal Rules

5.Systematic Lump Sum Withdrawal

6.Benefits of SLW

7.PFRDA Regulation

8.Changes

9.Annual Maintenance charges and Transaction Charges

For Prelims & Mains

Related Articles