National Pension System (NPS) is an investment cum pension scheme initiated by Government of India to provide old age security and pension of all citizen of India. The NPS was rolled out for all citizens of India on May 01, 2009. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
Who Can Join
- A citizen of India including NRI & OCI.
- Age between 18 years and 70 years at the time of submission of application
- Complied with KYC (Know Your Customers) norms
- As per NPS rules, PIO card holders are not eligible
PRA gives access to two types of NPS accounts to Subscribers :
- Tier I Account: This is known as pension account and is mandatory to open.Tax benefit on Investment amount is available only in this Account
- Tier II Account: Opening of this account is optional for investment purpose. The subscriber has the flexibility to can withdraw from this account as per their requirements
Tier II account can be opened along with Tier I account or at a later point of time.
Contribution Requirement for NPS Accounts:
| Particulars |
Tier I |
Tier II |
|---|
| Minimum Contribution required at the time of Account opening |
Rs. 500 |
Rs. 1000 |
| Minimum Subsequent Contribution Amount required |
Rs. 500 |
Rs. 250 |
| Minimum Contribution required per year |
Rs. 1000 |
NIL |
| Minimum number of contribution required in a year |
1 |
NIL |
Minimum balance in Tier- II at the end of Financial year is Rs 2000/-
NPS offers Subscribers two approaches to invest their money:
| Investment Option |
Description |
|---|
| Active Choice |
- Under this option, Subscribers are free to allocate the investment across three asset classes as per their choice.
- Maximum allocation to asset class E is restricted to 75%.
Please Note:
- Upto 50 years of age, the maximum permitted Equity Investment is 75% of the total asset allocation.
- From 51 years and above, maximum permitted Equity Investment will be as per the equity allocation matrix provided below under Active Choice. The tapering off of equity allocation will be carried out as per the matrix on date of birth.
- The total allocation across E, C, G and A asset classes must be equal to 100%. In case, the allocation is left blank and/or does not equal 100%, the application shall be rejected.
|
| Auto Choice |
- Under this option, investment across three funds (E, C and G) is made as per the pre-defined pattern known as life - cycle fund.
|
Under the Active Choice NPS wealth is be invested in the following three options:
| Asset Class |
Description of Fund |
|---|
| E |
Investments in predominantly equity market instruments
|
| C |
Investment in fixed income instruments other than government securities
|
| G |
Investments in Government Securities
|
| A |
Alternate Investment Funds
|
Subscribers can invest their entire pension wealth in C or G asset classes and up to a maximum of 75% in equity (Asset Class E) and Max. up to 5% in AIF (Asset Class A).
Allocation Matrix for Asset Class E for Active Choice
| Age (years) |
Max. Equity Allocation |
| Upto 50 |
75% |
| 51 |
72.50% |
| 52 |
70% |
| 53 |
67.50% |
| 54 |
65% |
| 55 |
62.50% |
| 56 |
60% |
| 57 |
57.50% |
| 58 |
55% |
| 59 |
52.50% |
| 60 & above |
50% |
Subscribers can also distribute their pension wealth across E, C, G and A asset classes, subject to such conditions as may be prescribed by PFRDA.
Under the Active Choice, subscribers shall be required to indicate his choice of Pension Fund Manager (PFM) from among the eight Pension Fund Managers (PFMs) appointed by PFRDA. In case he does not indicate any choice of PFMs, please note that it is deemed that he has consented to opting for the default option for the PFM as provided by PFRDA.
Under the Auto Choice, NPS offers an easy option for those Subscribers who do not have the required knowledge to manage their NPS investments. In case where Subscriber is unable/unwilling to exercise any choice as regards asset allocation, his funds will be invested in accordance with the Auto Choice option.
Life Cycle Fund: Pre-defined Investment Pattern
The Auto choice comes with 3 options of Investment, depending on the maximum Equity exposure
a. Aggressive LC75- Equity upto 75%
b. Moderate- LC50- Equity upto 50%
c. Conservative LC25- Equity upto 25%
| Percentage Allocation to different Asset Classes |
Moderate Life Cycle Fund
( Existing)
LC- 50 |
Aggressive Life Cycle Fund
LC- 75 |
Conservative Life Cycle Fund
LC- 25 |
| Age |
Equity
( E ) |
Corp. Bonds
( C ) |
Govt.
Bonds
( G ) |
Equity
( E ) |
Corp. Bonds
( C ) |
Govt.
Bonds
( G ) |
Equity
( E ) |
Corp. Bonds
( C ) |
Govt.
Bonds
( G ) |
| Upto 35 years |
50% |
25% |
25% |
75% |
10% |
15% |
25% |
45% |
30% |
| 36 |
48% |
26% |
26% |
71% |
11% |
18% |
24% |
43% |
33% |
| 37 |
46% |
27% |
27% |
67% |
12% |
21% |
23% |
41% |
36% |
| 38 |
44% |
28% |
28% |
63% |
13% |
24% |
22% |
39% |
39% |
| 39 |
42% |
29% |
29% |
59% |
14% |
27% |
21% |
37% |
42% |
| 40 |
40% |
30% |
30% |
55% |
15% |
30% |
20% |
35% |
45% |
| 41 |
38% |
31% |
31% |
51% |
16% |
33% |
19% |
33% |
48% |
| 42 |
36% |
32% |
32% |
47% |
17% |
36% |
18% |
31% |
51% |
| 43 |
34% |
33% |
33% |
43% |
18% |
39% |
17% |
29% |
54% |
| 44 |
32% |
34% |
34% |
39% |
19% |
42% |
16% |
27% |
57% |
| 45 |
30% |
35% |
35% |
35% |
20% |
45% |
15% |
25% |
60% |
| 46 |
28% |
36% |
36% |
32% |
20% |
48% |
14% |
23% |
63% |
| 47 |
26% |
37% |
37% |
29% |
20% |
51% |
13% |
21% |
66% |
| 48 |
24% |
38% |
38% |
26% |
20% |
54% |
12% |
19% |
69% |
| 49 |
22% |
39% |
39% |
23% |
20% |
57% |
11% |
17% |
72% |
| 50 |
20% |
40% |
40% |
20% |
20% |
60% |
10% |
15% |
75% |
| 51 |
18% |
41% |
41% |
19% |
18% |
63% |
9% |
13% |
78% |
| 52 |
16% |
42% |
42% |
18% |
16% |
66% |
8% |
11% |
81% |
| 53 |
14% |
43% |
43% |
17% |
14% |
69% |
7% |
9% |
84% |
| 54 |
12% |
44% |
44% |
16% |
12% |
72% |
6% |
7% |
87% |
| 55 |
10% |
45% |
45% |
15% |
10% |
75% |
5% |
5% |
90% |
| 55 and beyond |
10% |
45% |
45% |
15% |
10% |
75% |
5% |
5% |
90% |
As a unique feature, subscribers get an option to select a fund manager to manage their investment portfolio. Currently, 8 fund managers are registered with PFRDA to manage the investment portfolio of NPS Subscribers.
- Kotak Mahindra Pension Fund Limited
- ICICI Prudential Pension Funds Management Company Limited
- LIC Pension Fund Limited
- SBI Pension Funds Private Limited
- UTI Retirement Solutions Limited
- HDFC Pension Management Company Limited
- Birla Sunlife Asset Management Company Limited
Vesting from Tier I Account
| Particulars |
Before the age 60 / Superannuation date as per service rules |
At the age 60 / Superannuation date as per service rules |
|---|
| Minimum Amount required to buy Annuity |
80% of Pension Wealth |
40% of Pension Wealth |
| Withdrawal of Balance Amount |
Only in one Lump sum immediately, no deferment allowed |
In upto10 annual instalments till 70 years of age.
OR
Lump sum at any point of time before attaining the age of 70 years.
OR
Withdrawal can be deferred up to 70 years of age* - |
| When would Annuity start |
Annuity will start immediately irrespective of age of the subscriber at the time of withdrawal |
Annuity will start immediately after it is purchased.
Purchase of annuity can be made immediately on retirement
OR
Deferred by up to 3 years from retirement date* |
| Contribution beyond 60 years / superannuation age |
Not available |
Allowed till 70 years of age*, Normal rules of account operation will continue to apply till exit of the subscriber from NPS. There will be no option for the deferment of the annuity purchase or deferment of withdrawal under this option which can be done anytime. |
| What happens to PRAN |
PRAN will be closed. |
PRAN will be closed. |
| What happens if Tier II account is also there |
Amount available in Tier II account will be credited to Subscriber's Bank account automatically and Tier II account will also be closed. |
Amount available in Tier II account will be credited to Subscriber's Bank account automatically and Tier II account will also be closed. |
* Request needs to be given in Central Recordkeeping Agency (CRA) system latest 15 days before retirement date.
Withdrawal / Exit from NPS: Subscribers can now initiate the withdrawal of their funds from NPS online on CRA-NSDL portal.
Annuity Services: On retirement, Subscriber can select any of the PFRDA registered Life Insurance Companies to offer Annuity Plans. Below is the list of Life Insurance companies registered with PFRDA to provide annuity services
- Kotak Mahindra Life Insurance Co. Ltd.
- Life Insurance Corporation of India Limited
- SBI Life Insurance Company Limited
- ICICI Prudential Life Insurance Company Limited
- Star Union Dai-ichi Life Insurance Company Limited
- HDFC Standard Life Insurance Company Limited
Intermediaries in NPS Architecture
- POP / POP - SP: Point of Presence / Point of Presence - Service Provider is first point of contact for subscribers under NPS architecture. Primary role for POP / POP - SP is marketing of NPS and providing services to all NPS subscribers. Kotak Mahindra Bank is one of the leading POP for NPS.
- CRA: Central Recordkeeping Agency is responsible for recordkeeping, servicing of customer requests processed through POP / POP - SP, issuance of PRAN card and Welcome KIT etc. It is also responsible for providing strong system support for customers and POP / POP - SP. NSDL is CRA in NPS architecture
- Pension Fund Manager: PFM is responsible for investment of contribution amount deposited by the subscribers. Kotak Mahindra Pension Fund Limited is one of the Pension Fund Manager.
- Trustee Bank: Trustee Bank is an interface with CRA and Pension Fund Managers. It manages the banking of Pension Funds in accordance with applicable provisions of NPS.
- Custodian: Stock Holding Corporation of India Limited (SCHIL) acts as Custodian in NPS architecture. The entity is responsible for holding and safeguarding assets of the NPS Trust.
- Annuity Service Provider: Annuity Service Providers are responsible for delivering a regular monthly pension to subscribers for rest of their lives.
- NPS Trust: The NPS Trust is established by PFRDA. It is responsible for taking care of funds under NPS. The trust holds an account with Trustee Bank.
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