New Pension Scheme

New Pension Scheme is a system where Individuals fund, during their work life; provide financial security for old age when they no longer work. It is the lowest cost self financing social security tool. In simple term we can say that the NEW PENSION SCHEME is a system of fund management for retirement like the EPF and PPF. But this provides a higher return than other investment.

MOST ATTRACTIVE INVESTMENT IN INDIA

In India various investment options are available for everyone such as

• Saving Bank A/c
• Liquid fund and Mutual Fund
• Bank Fixed Deposit
• Equity Shares, Bond and Debentures
• Life Insurance Policies etc.

But in this various investment options one of the most attractive investments is NPS. The NPS was launched on 1 MAY, 2009 for all citizens in India.

ROLE OF GOVERNMENT

NEW PENSION SCHEME is the first social responsibility tool introduced by Government in India. The Pension Fund Regulatory and Development Authority will protect the interest of NEW PENSION SCHEME Subscriber’s.

PROCESS FOR ENROLLING IN NEW PENSION SCHEME

Anyone in the age group of 18 to 55 years can apply for the NEW PENSION SCHEME and get its benefit, irrespective of the sector in which he/she works (government as well as private sector).

KEY FEATURES OF NEW PENSION SCHEME

Following are some Key Features of NEW PENSION SCHEME

• Higher Yield
• Tax Deductible under section 80 C
• Low charges
• Internet Facility
• Protection
• Swavalamban scheme Benefit

OPERATIONAL GUIDELINES OF NEW PENSION SCHEME

Once you join the NEW PENSION SCHEME, you would be given Permanent Retirement Account Number (PRAN). PRAN is something like an account number which will help you to check your funds online.

The offer document issued at the launch of NEW PENSION SCHEME mentioned that under two types of account would be available to the subscribers viz:

• TIER I
• TIER II

Tier I - Where you can contribute your saving for retirement into a non-withdrawals account.

Tier II – Tier II account is a voluntary savings account form in which you are free to withdrawal your saving whenever you wish.

CHARGES, STRUCTURE & CONTRIBUTION

CHARGES 

• New Account opening charges is Rs. 40 (Both for Tier I and Tier II)
• Tier II activation charges for existing subscribers of Tier I is Rs. 40.

CONTRIBUTION

The minimum annual contribution to NEW PENSION SCHEME has been fixed at Rs. 6000 in minimum four yearly Installments. You can make any number of installments and any amount in the NEW PENSION SCHEME. There is no upper limit on the contribution per installment or on the number of Installments.

DEFAULT CHARGES

A Default charge of Rs. 100 per year would be charged if you are unable to pay the Installment and the minimum amount of Rs. 6000 per year. The account will become dormant and can be renewed on request after paying the charges and the contribution of Rs. 6000.

RETURNS IN NEW PENSION SCHEME

NEW PENSION SCHEME is a latest entrant in the market, had generated an average return of 12% in the first year of its operation, outperforming most other long term saving schemes such as EPF and term deposits.

DOUBLE PROFITABILITY

Investment in the NEW PENSION SCHEME is providing to be doubly profitable for unorganized sector workers because of Swavalamban Scheme.

SWAVALAMBAN SCHEME

The Government of India has approved the operational guidelines for scheme which was announced in the Finance Minister’s budget speech of 2010-2011. The Scheme is applicable to all citizens in the unorganized sector who join the NEW PENSION SCHEME subject to meeting the eligibility criteria.

Under this Scheme, Central Government will contribute Rs. 1000 per year to each NEW PENSION SCHEME Account opened in the year 2010-11 and for the next 3 years i.e. 2011-12, 2012-13, 2013-14. This Scheme will be funded by grants from Government of India. The Scheme will be called Swavalamban Yojana.

ELIGIBILITY

To be eligible, a person will have to make a minimum contribution of Rs. 1000 and Maximum contribution of Rs. 12000 per annum for both Tier I and Tier II accounts taken together.

To recognize of their faith in NEW PENSION SCHEME, all NEW PENSION SCHEME accounts opened in the year 2009-10 will also be entitled to the benefit of Swavalamban subject to fulfillment of eligibility criteria.

EXTRA BENEFIT

According to the Swavalamban Scheme, Central Government contributes Rs. 1000 per annum per account of NEW PENSION SCHEME. But HARYANA and KARNATAKA have already started contributing and according to sources some more states are planning to join this two. This will lead to the total Government Contribution per account to Rs. 2000 a year.

TAX BENEFIT

Every long term saving have three stages

• Contribution
• Accumulation
• Withdrawal

The NEW PENSION SCHEME was form when Government was planning to move all long term saving to a tax regime i.e. called Exempt-Exempt –Taxes (EFT) standing for exempt at time of Contribution, exempt during the period when the Investment accumulates and taxed at the time of withdrawal. So, NEW PENSION SCHEME comes under the Tax regime EET.

At present, NEW PENSION SCHEME is to be taxed at the time of withdrawal. The pension Fund Regulator has taken with the Finance Ministry to address the anomaly and the decision is expected when the new Government is formed.

Investment in NEW PENSION SCHEME up to Rs. 100000 is tax deductible under section 80 C.

FUND MANAGEMENT

A central record keeping agency will maintain all the accounts, just like a depository maintain demat accounts for shares. NEW PENSION SCHEME corpus is managed by six different fund managers.

The pension fund manager investing them in the three asset classes;

• EQUITY
• GOVERNMENT SECURITY
• DEBT INSTRUMENT

• The NEW PENSION SCHEME corpus is equally divided amongst the six fund manager i.e

1.SBI PENSION FUND

2.UTI RETIREMENT SOLUTIONS

3.IDFC PENSION FUND

4.ICICI PRUDENTIAL FUND

5.KODAK MAHINDRA PENSION FUND

6.RELIANCE CAPITAL PENSION FUND.

• The equity investment of the scheme have generated a 26% return.
• The return on government securities is 5% and 11% is generate due to corporate fund

SIGN UP FOR NEW PENSION SCHEME

People can subscribe to the scheme from any 285 pops across the country.

NEW PENSION SCHEME is run by 17 banks:-

• SBI AND IT’S ASSOCIATES
• ICICI , AXIS , KODAK MAHINDRA
• ALLAHABAD BANK
• CITI BANK
• IDBI
• ORIENTAL BANK OF COMMERCE
• SOUTH INDIAN BANK
• UNION BANK OF INDIA AND FOUR OTHER FINANCIAL ENTITY
• LIC , IL & FS , UTI ASSET MANAGEMENT AND RELIANCE CAPITAL.

• A subscriber can shift his pension account from one pop(point of presence) to another, Subscriber can choose from six fund manager.

CONCLUSION:-

THIS IS BEST THING TO HAVE HAPPENED TO THE INDIAN INVESTER WHO HAS NOT HAD MUCH OF A CHOICE REGARDING PENSION EARLIER. THE BENEFIT OF COMPOUNDED RETURN THAT THE NEW PENSION SCHEME OFFERS WILL BE IMMENSE. IF NEW PENSION SCHEME IS PROMOTED IN RIGHT WAY , IT WILL NO LESS THAN A REVOLUTION.THE TAX ON WITHDRAWAL IN NEW PENSION SCHEME IS A BLUNDER AND THIS WILL BE RECTIFIED BY GOVERNMENT SOONER RATHER THAN LATER.THE LOW CHARGES AND AUTOMATIC RUPPEE COST AVERAGING MAKES NEW PENSION SCHEME A BETTER OPTION THAN THE PENSION PLANS OFFERED BY INSURANCE COMPANIES.THE BENEFIT OF NEW PENSION SCHEME ARE NO LONGER CONFINED TO GOVERNMENT EMPLOYEES BUT ALSO AN INDIVIDUAL FROM UNORGANISED SECTOR.IT WAS ANNOUNCED IN THE BUDGET THAT NEW PENSION SCHEME WILL NOT ATTRACT ANY SECURITIES TRANSACTION TAX AND DIVIDEND DISTRIBUTION TAX , THIS WILL FURTHER IMPROVE THE PERFORMANCE IF NEW PENSION SCHEME.

UNORGANISED SECTIOR

For the purpose of this scheme a person will be deemed to belong to the unorganized

If that person:- 

• Is not in regular employment of the central or state government or an autonomous body/public sector undertaking of the central or state government having employer assisted retirement benefit scheme or
• Is not covered By a social security scheme under any of following laws:
• Employee’s provident fund and miscellaneous provisions Act,1948.
• The seamen’s provident fund Act,1966.
• The Assam Tea plantations provident fund and pension fund schemeAct,1955.
• The Jammu and Kashmir employee’s provident fund Act,1961.

 AJAY KAMAL