Available to all citizens of India from 1st May 2009
In August 2008, Government had decided to offer NPS to all citizens of India on a voluntary basis. The necessary infrastructure for the roll-out of NPS is now ready and the New Pension System will be available to all citizens of India from 1st May 2009. Tier-I of the NPS constituting the nonwithdrawable Pension account will become operational from that date and Tier II (withdrawable account) of the NPS account will become operational in about six months.
Accordingly, PFRDA took necessary steps to scale up the existing infrastructure to roll-out the NPS for all citizens. Twenty two Points of Presence (PoPs) and six Pension Fund Managers have been appointed by PFRDA for offering NPS to citizens at annual fees of 0.0009% of the invested amount, which is less than one paise per Rs 100. Branches of the registered PoPs designated as PoP Service Providers (PoP-SP) will act as the initial point of contact and collection point for all citizens other than Government employees desiring to obtain a Permanent Retirement Account Number (PRAN) under NPS.
The following entities have been approved by PFRDA for appointment as Sponsor(s) of Pension Fund/Pension Fund under the New Pension System for all citizens other than government employees covered under NPS:-
1. ICICI Prudential Life Insurance Company Limited
2. IDFC Asset Management Asset Management Company Limited
3. Kotak Mahindra Asset Management Company Limited
4. Reliance Capital Asset Management Company Limited
5. SBI Pension Funds Limited
6. UTI Retirement Solutions Limited
The PFRDA has appointed 22 entities as Points of Presence (POPs) that includes 17 banks. Among the banks, State Bank of India and its six associates, Union Bank of India, Allahabad Bank, Oriental Bank of Commerce, IDBI Bank have been appointed as POPs.
Private sector lender like ICICI Bank, Kotak Mahindra Bank and foreign bank Citibank will also function for the NPS for all citizens other than government employees. Other entities include LIC, UTI Asset Management Company, Reliance Capital, IL&FS Securities Services and Bajaj Allianz General Insurance.
Guidelines A. The PF will manage 3 separate schemes, each investing in a different asset class, being:
1. Asset class E (equity market instruments) - The investment by an NPS participant in this asset class would be subject to a cap of 50%. This asset class will be invested in index funds that replicate the portfolio of either BSE Sensitive index or NSE Nifty 50 index. Index Fund Schemes invest in securities in the same weightage comprising of an index. The PF will have to choose which index they intend to track in advance on a yearly basis. The permitted cap, as mentioned above, is expected to be maintained at that level at all points in time. However, the amount of funds invested in that asset class can differ from the specified cap by no more than 5% for purposes of portfolio balancing.
2. Asset class G (Government Securities) - This asset class will be invested in central government bonds and state government bonds.
3. Asset class C (credit risk bearing fixed income instruments) - This asset class contains bonds issued by any entity other than Central and State Government. This asset class will be invested in liquid funds of Mutual Funds, credit rated debt securities. This includes rated bonds/securities of Public Financial Institutions and Public sector companies, rated municipal bodies/infrastructure bonds and bonds of all firms (including PSU/PSE).
B. Cash held in the schemes will be for trading and cash flow management purposes only. Cash will not exceed 10% of the assets of the scheme portfolios, except when 'cash' or specific cash instruments (such as treasury bills etc) are included in the investment universe.
The default option, called auto choice lifecycle fund, will see the investment mix change according to the age of the subscriber. At the lowest entry age of 18 years, auto choice entails an investment of 50% in E, 30% in C and 20 per cent in G. The ratios will remain unchanged till the subscriber turns 36, when the ratio of investment in E and C will decrease annually, while the proportion of G rises. By the time the subscriber is 55 years, G will account for 80 per cent of the corpus, while the share of E and C will fall to 10% each.
Investment Objectives The investment objectives for the three asset classes are outlined below:
Asset class E:
Benchmark � the performance of the scheme will be measured by reference to the total performance (dividends reinvested) of either BSE Sensex or NSE Nifty 50 Index, as chosen by the PF. The PF will have to choose which index they intend to track in advance.
Performance objective - the investment objective is to optimise returns while investing in the chosen index over a rolling annual basis.
Asset class G:
Performance objective - the investment objective is to optimise returns.
Risk - It is expected that the PF will be able to identify and justify the additional risks relative to the return, while managing the portfolio on an absolute return basis.
Asset class C:
Performance objective - the investment objective is to optimise returns.
Risk - is expected that the PF will be able to identify and justify the additional risks relative to the return, while managing the portfolio on an absolute return basis.
Any Indian citizen between 18 and 55 years can invest in NPS. There is no investment ceiling. But the minimum investment limit has been fixed at Rs 6,000 annually. The minimum number of installments per year is four. There is no upper limit on the contribution per installment or on the number of installments. The investor will have to bear a penalty of Rs 100 per year of default and will need to pay it with the minimum amount to reactivate the account. Also, dormant accounts will be closed when the account value falls to zero. The investor can exit before attaining the age of 60 years, provided he annuitise at least 80% of his pension corpus.
Central Government made the New Pension System (NPS) mandatory for its new recruits (except defense forces) from 1st January, 2004. A majority of State Governments have also shifted to the defined contribution based new pension system from varying dates.
