National Pension System

(NPS)
What is NPS?

 A Defined Contribution based Investment Scheme launched by Government of India with effect
from 1st January 2004

 A citizen of India including NRI between the age of 18 years and 65 years is allowed to join the
Scheme

 Upon joining, NPS account is opened for the subscriber and unique Permanent Retirement
Account Number (PRAN) issued by Government of India to each subscriber

 Subscriber contributes to his / her NPS Account periodically till he / she attains the age 60 years and
uses the accumulations (Pension Wealth) at retirement for getting a Pension
NPS stands apart : It’s distinct features

 Cost effective

 Flexible contribution mechanism

 Freedom to switch

 Host of choices

 Portable Account

 Prudently regulated & transparent

 Tax benefit
Types of NPS Account

Tier I NPS Account Tier II NPS Account

 Pension Account  Investment Account

 Mandatory to open to join NPS  It’s Optional

 Withdrawal is restricted  Withdrawal is permitted

anytime

• Investment for availing of Tax Benefits is done only in Tier I NPS Account.

• There is no tax benefits in Tier II NPS Account

 Background - Key Stakeholders

Autonomous body set up by

Government of India to develop & It is a custodian of the data.
regulate pension market
CRA - Central Record Keeping Agency
Pension Fund Regulatory & Development Authority

Responsible for custody of

First point of contact for corporate, securities
subscribers & NPS stakeholders
Role played by Stock Holding
Custodian Corporation of India (SHCIL)
POP - Point of Presence

Responsible for delivering monthly

Responsible for investment and pension to subscriber
management of funds

PFM - Pension Fund Manager ASP - Annuity Service Provider

Supervision of PFMs Role played by Axis Bank; Manages

banking functions across various
entities of NPS
NPS Trust Trustee Bank
Fund Performance
Value proposition for Employees
Exclusive Tax Benefits beyond 80C limit

Contribution of up to Rs.50,000 is eligible Contribution of up to 10% of Basic Salary

for tax deduction u/s 80CCD (1B) (without any cap in terms of absolute value)
is eligible for tax deduction u/s 80CCD (2)

Both the tax benefits are mutually exclusive and can be availed of at the same time
Tax benefits beyond 80C limit – how it works

Corporate
Contribution for NPS
is deducted from
any flexi component
of the salary and
invested by the
Corporate as
Employer’s
Contribution
Value Proposition for the Corporate

No Administration Cost burden

- No cost of setup or
maintenance of Self
No account related obligation
Administered Pension Funds
- Corporate acts merely as Unmatched flexibility
- No Cost of joining the Scheme facilitator
Corporate gets the flexibility to
-Simple procedure to add or - The Account maintenance decide the following:
remove employees at any point responsibility / obligation remains
of time with the employees only - To roll out NPS for all on voluntary
basis / for select group of
employees
- To select a Pension Fund Manager,
Asset Allocation and Investment
option on behalf of employees
- To fix the percentage / frequency
of contribution
A simple four step-process

• It is facilitated by POP • Requires • Post obtaining the

which acts as Point of implementation of consent from
Presence under NPS proper mechanism employees, corporate
architecture by the Corporate to needs to deduct
educate its existing contribution amount
• Unique registration from the salary and
and new employees remit to POP pool
number is created for about NPS and its
each legal entity account for further
benefits processing
• Establishing back
end processes like
salary restructuring
etc.
TAT after Submission all Approx TAT after Corporate Registration is 20 days for the PRAN Generation Takes 6-10
documents is 10 Days. Education sessions and Employee Form Submission. Days.
Investment options

* Asset choice can be changed twice in a financial year

 Life – Cycle Fund option : (Auto Choice)
Subscribers also get an option to invest in Life – Cycle Fund under Auto Choice Investment Option where fraction of
funds invested across three asset classes is determined by a pre–defined portfolio which is based on the age of the
Subscribers.
Moderate Option:

Other two New options are introduced as Aggressive and Conservative with the maximum
exposure of 75% and 25% into equity respectively.
Partial Withdrawal from the Scheme

 Up to 25% of the Contribution amount (not the Corpus) of his / her own can be withdrawn after
3 years of account opening
 Another 2 withdrawals can be made after a gap of 5 years after the first withdrawal
 Withdrawal is allowed only for specific purposes like Higher Education, Child’s marriage, buying
home or treatment of Critical illnesses etc

Please Note : Amount withdrawn as partial withdrawal is tax exempt and Contribution deposited for
availing of tax benefits u/s 80CCD (2) is treated as Employer’s Contribution and partial withdrawal
is not be permitted on it
Exit from the Scheme (Closing NPS Account)

Subscriber can exit from the Scheme only after 10 years of account opening or
attainment of 60 years of age, which ever comes first

40% of Total Accumulated Wealth withdrawn in lump sum on retirement is exempt from tax.
Balance amount can be invested in Annuity which is also tax exempt.
Options at Superannuation / Retirement Age

 Deferring annuity purchase for 3 years

 Deferring withdrawal for 10 years in lump sum / installments (maximum 10 equal / unequal
installments)

 Continuation of contribution till 70 years

Charges under NPS for intermediaries (excluding Service Tax)

*Minimum Rs.20 and Maximum Rs.25,000 per contribution

New Charge Structure (POP)

Other charges remain the same

Annuity Service Providers (ASPs) & Annuity Options
• Pension payable for life at a uniform rate to
the Subscriber only
• Pension payable for 5, 10, 15 or 20 years
certain and thereafter as long as Subscriber
is alive
• Pension for life with return of purchase
price on death of the Subscriber
• Pension payable for life increasing at a
simple rate of 3% per annum
• Pension for life with a provision of 50% of
the annuity payable to spouse during
his/her lifetime on death of the Subscriber
• Pension for life with a provision of 100% of
the annuity payable to spouse during
his/her lifetime on death of the Subscriber
Thank You