Plan your pension with NPS
Sanjay Khurana
Tribune News Service

Chandigarh, May 2
The Pension Fund Regulatory and Development Authority (PFRDA) has launched the New Pension Scheme (NPS) with effect from May 1. Now, every citizen of the country can avail of the pension facility and plan his retirement.

Any Indian citizen between the age of 18 and 55 years can join the NPS. At present, only Tier-I of the scheme, constituting non-withdrawable pension account, is operational while Tier-II (withdrawable account) of the NPS account will become functional in about six months.

There is no investment ceiling. But the minimum investment limit has been fixed at Rs 500 a month or Rs 6,000 per annum.

The NPS would be based on defined contributions. It will use the existing network of bank branches and post offices to collect contributions. There will be seamless transfer of accumulations in case of change of employment and/or location. It will also offer a basket of investment choices and fund managers. The NPS is a voluntary scheme.

The system will, however, be mandatory for new recruits to the Central Government service (except the armed forces). The monthly contribution will be 10 per cent of the salary and DA to be paid by the employee and matched by the Central Government.

However, there will be no contribution from the government in respect of individuals who are not government employees. The contributions and returns thereon will be deposited in a non-withdrawable pension account.

In addition to the above pension account, each individual can have a voluntary Tier-II withdrawable account at his option. The government will make no contribution to this account. These assets will be managed in the same manner as the pension. The accumulations in this account can be withdrawn anytime without assigning any reason.

Individuals can normally exit at or after 60 years of age from the pension system. At exit, the individual will be required to invest at least 40 per cent of pension wealth to purchase an annuity.

In case of government employees, the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual will receive a lump sum of the remaining pension wealth, which he/she will be free to utilise in any manner.

Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitisation would be 80 per cent of the pension wealth.

There will be one or more central record keeping agency (CRA), several pension fund managers (PFMs) to choose from which will offer different categories of schemes.

The participating entities will provide easy to understand information about the past performance and regular NAVs so that the individual can make informed choices about which scheme to choose.