Swavalamban Pran Card

Issuing PRAN Card For National Pension System For India

Plan For Retirement

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Govt. of India’s Swavalamban Scheme

Special focus towards Economically Disadvantaged and Unorganized Sector

PRAN Card – Permanent Retirement Account Number

A Pension provides people with a Monthly Income when they are no longer Earning.

Tuesday, 16 April 2013

Change in NPS payout to tailor it to your needs


The National Pension Scheme (NPS) has made several changes in its various operational parameters in recent times, but there is one significant change that needs attention of all investors. This relates to the manner in which withdrawals can be made from the scheme once the pension age has been reached. The new norms will make it easier for individuals to actually ensure that they are able to get the required amount of money in the manner in which they see fit rather than being forced to follow the conditions laid out in the scheme. Here is a look at the change that will now be visible.

Current situation: There are two phases in the entire process of pension for individuals. The first stage, which is important for wealth accumulation point of view, deals with investments that will be made in the scheme. This can take place over a number of years and the goal of investors should be to contribute as much as possible so that a higher amount is available in the latter years. The other stage comes at the time of reaching the age for receiving pension. When a person turns 60, it is mandatory to use 40 per cent of the accumulated amount to generate pension, while the remaining amount can be withdrawn.

With respect to the remaining 60 per cent of the accumulated amount that is present in the account, investors can choose the phased withdrawal system, whereby, they can choose a certain percentage that they would withdraw each year including the year in which they are exiting the system. This is often found to be a problem for several people who have need for funds at a specific point of time and with the phased withdrawal undertaken, the needs and the flow of fund might not match. This is the reason that there have been lots of representations to the pension authorities regarding this issue.

There has been a change initiated with respect to withdrawals following the representations made on the issue. There will now be an option for subscribers to defer, or time, the entire lumpsum withdrawal as per their convenience. The new system would be called the deferred withdrawal system. Under this system, there is the ability to take the entire 60 per cent of the withdrawal at a single point of time. The other factor is that investors can decide the time period. So, this could be right at the time of reaching the pension age or later. This will help a lot of people who actually need funds at the time of their retirement for a specific purpose and they will be able to take the money to the extent allowed as per the workings of the scheme.

The availability of the route of withdrawal also means an additional bit of work as far as individuals are concerned. Since they have the responsibility of making the required decision on their own, this will require an element of homework on their part. It has to be noted that they can defer the withdrawal only up to a period of 70 years of age and take it at any time before they reach this age. Meanwhile, no new contributions will be possible. If there is no intimation given till the time they reach 70, then the amount would be redeemed at that specific point of time.

Investors now have to make the decision in advance and they have to go about the process by looking ahead and then planning for this particular situation.

(The writer is a CA and certified financial planner)


Training on new pension scheme

The Corporate Relations Institute will organise an introductory training on the New Pension Scheme being introduced for appointments made from April 1, 2013, at Hotel Residency Towers on April 17.

 The State Government has made the New Pension Scheme (NPS) applicable for all appointments made from April 1, 2013. It would deposit 10 per cent and the employee another 10 per cent of his or her monthly salary as per provisions of the new scheme.

 The new system would also have the family pension component. This will be the maiden training programme being held in Kerala, after the scheme came into being. The scheme will apply to all employees to whom Part III of Kerala Service Rules (KSR) is applicable.

 It will also apply to public sector undertakings where pensionary benefits as per Part III of KSR are granted. Guidelines and detailed accounting procedure to be followed under the scheme in accordance with the latest amendments to KSR will be discussed during the training programme.

 The training will empower the participants on the particulars, provisions, processes and procedures of the new pension scheme. It will also be of specific advantage to officials looking after the pension affairs of existing employees as well as new recruits in their respective organisations.

 Admissions will be against pre-registrations. More details can be had from trainingrelations@gmail.com or corelations@sify.com. Phone no: 09961217555.


Confusion over pension scheme coverage

A mix-up by the Directorate of Treasuries while allotting the Permanent Retirement Account Number (PRAN) under the New Pension Scheme (NPS) to the Department of Public Instruction (DPI) employees has led to confusion among the staff.

Under the NPS, only the DPI employees who joined service after April 1, 2006, are eligible. However, according to sources, PRAN numbers have been generated even for those who joined before April 2006, causing a considerable loss to the state exchequer.

“We estimate that the problem is being faced by 1,602 employees of the DPI,” said a senior official at the human resource management system (HRMS) cell of the DPI. The mistake that the NPS made was to randomly generate PRANs for wrong employees. One such case is that of an assistant master from government composite high school in Karaya, Belthangady, who joined government service before April 2006. She received a letter from NPS requesting her to furnish details of her employment as she had already received PRAN.

Explaining the mix-up, some NPS staff said that in November they had written to the Education Department seeking a list of employees who had joined government service after April 1, 2006. As there was no response, the Directorate of Treasuries issued letters to employees randomly.

The problem that the NPS now faces is that all the employees they approached have started sending their employment documents directly to them.  “We have a whole bunch of documents that we cannot accept. They are verified by the drawing officers (block education officers for primary teachers and headmasters for high schools). We want them verified by the Commissioner for Public Instruction,” an NPS employee said.

Amidst this confusion, the DPI issued directions to DDPIs in February asking them to take steps to collate all the documents of employees in their jurisdiction.

“This has not happened, even as the BEOs and headmasters continue to upload wrong details of employees in our HRMS, which is adding to the confusion,” the official said.


National Pension System Vs PPF: Which is better?

In an interview to CNBC-TV18, personal finance expert, Sumeet Vaid of Ffreedom Financial Planners discussed about various aspects of National Pension System and Public Provident Fund.

Below is the verbatim transcript of Vaid's interview with CNBC-TV18.

Q: The National Pension System (NPS) is fetching near double-digit returns, which is at least a percentage point higher than what Employees' Provident Fund (EPF) or Public Provident Fund (PPF) offer. Will this trend continue and is it a one year wonder because of the stock market is doing well. How should investors approach the NPS vis-à-vis PPF and EPF?
A: I think NPS is going in a great direction; it is the right direction in which it is going. However, still early days for NPS. They are building their track record in terms of fund management. The basic unique selling point (USP), which NPS provides vis-à-vis other investment options -- accumulation stage of retirement fund, cost of fund management is very low and one do not have that option of accessing that kind of cost anywhere else and those are the advantages, which is reflecting in the performance of underlying NPS. However, when comes the question of comparing EPF, PPF with NPS, it is no-brainer as of now.

Also Read: UK Sinha Warns Investors Of Fraudulent Schemes

Go in for PPF and EPF but keep a watch on NPS and environment will become much clearer in terms of action once the new tax regime, which has been talked about comes out in which the exempt-exempt-tax regime, which one has been looking forward to, comes then the situation becomes slightly different. However, as of now it’s in favour of EPF, PPF but keep a watch on NPS.

Q: Should you compare the NPS to some of the mutual funds because that is where the tax treatment seems to be more aligned?
A: That is right; NPS should be compared with mutual funds because money is being managed by some of the same fund managers under the asset management company structure itself. As I mentioned earlier, the cost is one big advantage in favour of NPS. The cost being paid is very low, it is one of the lowest cost of managing retirement point in the world is in India and that is they have done very well.

 One more thing, which one need to keep a watch on is the pension bill. It needs to get approved in the parliament because Pensions Fund Regulatory and Development Authority (PFRDA) getting a statutory status will pickup pension industry in terms of product development in times of companies coming in with specific product. However, as a starting point NPS is good compared to mutual fund but what one does not get in NPS is intermediation available; there are very few advisors or planners who are able to advice that.

Q: If you have to advice someone on asset allocation for retirement, would NPS have a place?

A: No. I will still wait for some more time because for me it is still early stages and the biggest challenge in NPS is servicing. The client servicing is a big challenge. They are still not clear how to do it because the intermediation costs are not built into that.

Caller Q: I have invested in three ULIP schemes, should I switch to mutual funds?

A: I would say that always buy insurance do not invest in insurance and if you have to invest, invest in mutual funds or other investment products. Insurance is an expense and investment has to be in non-insurance product over a longer period of time. In this current scenario because you have been paying premium for four year, you have to evaluate each and every policy and see the impact on the surrender value. There is no point incurring cost, there is no point incurring losses at this point of time.

If the losses are high or the surrender charges are very high then our advice is be to stay Put, do not redeem, do not stop, go on for two-three-four year more cycle, make sure you are able to take decent returns out of the policy and then switch. Having said that the basic thumb rule, which we always advice people is investing in mutual fund for long-term is much better, much less costly than investing in long-term for insurance provided you understand.


Friday, 12 April 2013

National Pension System Trust : As on 31st March 2012 NPS has 31,33,835 subscribers

The National Pension System Trust (NPS Trust) was established by PFRDA on 27th February, 2008 with the execution of the NPS Trust Deed. The NPS Trust has been set up and constituted for taking care of the assets and funds under the National Pension System (NPS) in the interest of the beneficiaries (subscribers). Individual NPS subscribers shall be the beneficiaries of the NPS Trust. The NPS fund are managed by the Board of Trustees to realize and fulfill the objectives of the NPS Trust in the exclusive interest of the Subscribers.

The Trust is managed by a Board of Trustees appointed by PFRDA (settlor of NPS Trust) from time to time. One of the Trustees from the Board is designated by PFRDA as Chairperson of the Board. PFRDA appoints a suitable person as Chief Executive Officer of the Trust (CEO) who shall be responsible for day to day administration and Management of the Trust subject to the superintendence, control and direction of the Board of NPS Trust. The Board shall meet once every three calendar months.

The current Board of Trustee of NPS Trust consists of Five Members as under:-
1. Sh. G. N. Bajpai- Chairman
2. Sh.Nagendra Bhatnagar-Chief Executive Officer & Trustee
3. Sh. Syed Shahabuddin – Trustee
4. Sh. Deepak M Satwalekar – Trustee
5. Dr. Rajan Saxena – Trustee

In fulfillment of its objectives, as broadly mentioned in the Deed, the NPS Trust supervises the Pension Fund Managers (PFM’S) and interacts with other intermediaries like Trustee Bank (Bank of India), Central Record Agency (NSDL), Stock Holding Corporation of India Ltd, etc. The Trust is empowered to enter into agreements with other intermediaries and operating agencies to discharge its obligations.

As part of its obligations, the NPS Trust ensures that,

The PFM’s have been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with any broker.

The PFM’s has not given any undue or unfair advantage to any associates or dealt with any of the associates of the Pension Fund in any manner detrimental to interest of the beneficiaries

The PFM’s has been managing the Fund Schemes independently of other activities and has taken adequate steps to ensure that the interests of the beneficiaries are not compromised.

All the activities and the transactions of the PFM’s are in accordance with the provisions of the PFRDA guidelines/directions.

A memorandum of Understanding was signed between PFRDA and the NPS Trust highlighting the rights and obligations of both the parties on 1st July 2009.

To begin with the NPS was operational for the Central Government Employees (except defense forces) joining the service on after 1.1.2004. Subsequently the State Governments have also started joining the NPS. Three Fund managers have been appointed to manage the Funds of the Government employees from 1.1.2008.

SBI Pension Funds Private Limited
UTI Retirement Solutions Limited
LIC Pension Fund Limited

The NPS was opened up for all citizens of India with effect from 1st May 2009.  PFRDA appointed six Pension Fund Managers to manage the funds of the new subscribers.

SBI Pension Funds Private Limited
UTI Retirement Solutions Limited
ICICI Prudential Pension Funds Management Company limited
Kotak Mahindra Pension Fund Limited
IDFC Pension Fund Management Company Limited
Reliance Capital Pension Fund Limited

Agreements with all the Pension Fund Managers have been signed. Agreement has also been signed with the Stock Holding Corporation of India who acts as custodian of investment Instruments. So far Twenty Six State Governments /UT have joined the NPS by signing the agreement with the NPS Trust. More State Governments have shown their inclination to join the NPS Architecture.

A quarterly review of the Pension Fund managers is carried out by the NPS Trust to review and evaluate the performance of the Fund Managers and make suggestions for improvement.

As on 31st March 2012 NPS has 31,33,835 subscribers with 15163 Crores of Assets under Management.

Source: www.pfrda.org.in

Union Bank starts selling New Pension Scheme

The Public sector Union Bank of India has started selling of the New Pension Scheme (NPS) through over 3,000 branches across the country, giving an impetus to the scheme.

The objective of the NPS is to promote old age income security to all sections of the society. Union Bank will act as a point of presence-service provider (POP-SP) of this scheme. The branches will be able to facilitate opening of NPS account, receiving contribution from time to time and switching of investment option.

“Only 4,000 of the 50,000 bank branches in the country are selling NPS, as many banks are reluctant to distribute the product. They account for just eight per cent of the branches,” said Yogesh Agarwal, chairman of Pension Fund Regulatory and Development Authority (PFRDA), which manages pension fund under NPS, on Saturday.

Envisaging that investors in insurance and mutual fund products for securing the post-retirement would eventually shift to NPS, Agarwal added, “The fund has been giving about 30 per cent more return than the existing insurance and mutual fund schemes. NPS is giving return of 12-14 per cent.”

The contributory NPS was launched by the Centre for its employees in January 2004, instead of the government assuring pension for its employees. In May 2009, it was extended to other people in the age bracket of 18-55 years. However, investor has to choose the investment options available, which is a difficult task even for seasoned investors.

“Though both public and private sector banks can participate in the scheme, many banks are not coming forward,” PFRDA chief said. “Due to poor distribution and very low commission, NPS did not make much inroads into nongovernment pension segment,” he added.

NPS has around 20 lakh members, including around 6 lakh corporate accounts, 12 lakh Central government employees and six lakh of state government ones. Still, it has a small corpus small at around Rs 9,000 crore.

About 27 out of 30 states have joined the scheme. “States of West Bengal, Tripura and Kerala have not joined the scheme citing ideological differences,” Agarwal said. As a part of financial inclusion programme, the Centre also launched a rural pension scheme – NPS Swavalamban in September 2010, with a 1,000 annual contribution from the Centre.


Wednesday, 10 April 2013

How to make changes in your NPS subscriber data

Subscribers to the National Pension Scheme (NPS) must submit their name, date of birth, contact information, bank account details and other personal details while opening an NPS account.

This information is noted by the CRA and a Permanent Retirement Account Number (PRAN) is allotted to the investor. The subscriber can change or carry out corrections in the details provided, including nomination. If the change necessitates the reissue of a fresh PRAN card, the same will be issued by the CRA.

A request for reissue of new PRAN card with updated details can be made at the point of presence (POP) which services the subscriber.


A standard Form UOS-S2 needs to be filled by the NPS subscriber. This form can be downloaded from http://tinyurl.com/cse6g7e. Only those fields that need to be modified should be filled in the form.


The subscriber needs to furnish a copy of the existing PRAN card along with two self-attested photocopies of supporting documents mentioned in the form in case of change or correction in personal details. In case of a change in the bank details, the form needs to be supported with a cancelled cheque bearing the new bank account number.


The form UOS-S2 along with supporting documents should be submitted to the POP. The subscriber also needs to bring original documents, which will be returned to him after verification by the POP.

Points to note

  • A new PRAN card will be sent to the subscriber only if the change pertains to the name of the subscriber, his date of birth or the father's name.
  • Subscribers should retain the acknowledgement slip signed/stamped by the POP where they submit the application.
  •  For issuing a new card, a processing fees of Rs 20 (plus applicable taxes) will be deducted from the subscriber's account.

Swavalamban Scheme

The Scheme and its applicability : Swavalamban Yojana will be applicable to all citizens in the unorganized sector who join the New Pension System (NPS) administered by the Interim Pension Fund Regulatory and Development Authority (PFRDA).

Benefits under the Scheme : Under the scheme, Government will contribute Rs. 1000 per year to each NPS account opened in the year 2010-11 and for the next five years, that is, 2011-12, 2012-13 and 2013-14, 2014 to 2017. The benefit will be available only to persons who join the NPS with a minimum contribution of Rs. 1,000 and maximum contribution of Rs. 12,000 per annum.

Architects of the National Pension System

Point of Presence (POP):

Points of Presence (POPs) are the first points of interaction of the NPS subscriber with the NPS architecture. The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend a number of customer services to NPS subscribers.

Central Recordkeeping Agency (CRA):

The recordkeeping, administration and customer service functions for all subscribers of the NPS are being handled by the National Securities Depository Limited (NSDL), which is acting as the Central Recordkeeper for the NPS.

Pension Funds (PFs)/Pension Fund Managers (PFMs):

The six Pension Funds (PFs) appointed by PFRDA would manage your retirement savings under the NPS.

Trustee Bank:

The Trustee Bank appointed under NPS shall facilitate fund transfers across various entities of the NPS system viz. PFMs, ASPs, Subscribers, etc. Bank of India (BoI) has been appointed as the Trustee Bank.

Annuity Service Providers (ASPs):

ASPs would be responsible for delivering a regular monthly pension to you after your exit from the NPS.

NPS Trust:

A Trust, appointed under the Indian Trusts Act, 1882 is responsible for taking care of the funds under the NPS in the best interests of subscribers.

Pension Fund Regulatory and Development Authority (PFRDA):

An autonomous body set up by the Government of India to develop and regulate the pension market in India.

POP's Services Under NPS

Subscribers can avail the following services from POP/POP-SP :

  •     Opening of New Account under NPS.
  •     Activation of Tier-II Account if subscriber already has Tier-I account under the scheme.
  •     Regular subscriber's contribution.
  •     Change in subscriber details.
  •     Change of investment scheme/fund manager.
  •     Processing of withdrawal request.
  •     Processing of request for subscriber shifting.
  •     Issuance of printed Account statement.
  •     Any other service as may be prescribed by PFRDA.
  •     The Subscribers will have complete control on how their contributions and savings in their Permanent Retirement Account (PRA) are managed by selecting a Professional Pension Fund Managers(PFM) from a pool of six PFM's.

NPS is Designed For

  1. The Central Government Employees: The Central Government had introduced the New Pension System (NPS) with effect from January 1, 2004 (except for armed forces). NPS has been made mandatory for new entrants in government job sector.All employees of Central Govt. or autonomous departments ( financed by Central Govt.) who have joined on or after January 1, 2004 will be covered by new pension scheme. These employees are not permitted to contribute in General Provident Fund (GPF). Monthly contribution (10% of basic +DA+DP) from the salary of the employee will be transferred to this account from the next month from joining Govt. services. This amount will be matched equally by the Govt. and contributed. As per the present guidelines of Pension Fund Regulatory and Development Authority(PFRDA), contribution towards pension will be invested in the default schemes of three Pension Fund Managers (PFMs), viz, LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited in a predefined proportion, which is mentioned in the Statement of Transaction. Each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity linked mutual funds. Hence, the employees of Central Government and Central Autonomous Bodies need not mention the details of the schemes while filling up the application form.
  2. The State Government Employees: The Central Government had introduced the New Pension System (NPS) with effect from January 01, 2004 (except for armed forces). Pension Fund Regulatory and Development Authority (PFRDA), the regulatory body for NPS, finalised the architecture and appointed NSDL as Central Recordkeeping Agency (CRA) and other entities for New Pension System. Subsequently, various State Governments adopted this architecture and implemented NPS with effect from different dates.
In NPS, a government employee contributes towards pension from monthly salary along with matching contribution from the employer. The funds are then invested in earmarked investment schemes through Pension Fund Managers.

As per the present guidelines of Pension Fund Regulatory and Development Authority(PFRDA), contribution towards pension will be invested in the default schemes for State Government of three Pension Fund Managers (PFMs), viz, LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited. The proportion in which contributions are allocated among these three PFMs is decided by each of the state government, which in mentioned in the Statement of Transaction. Each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity related instruments. Hence, in the application form for PRAN, the employees of State Government and State Autonomous Bodies need not mention the details of the schemes. 

3.Corporate Sector Employees: A corporate can either define the scheme for all their subscriber or can allow all the subscriber to select their own scheme. If the corporate defines the scheme, then they can have two options. In option 1, the can go for the three PFMs, viz. SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited, where allocation is done in a defined proportion and each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity related instruments. In option 2, the corporate can also choose one out of six Pension Fund Managers(PFMs) and also the percentage in which the selected PFM will invest the funds.

The six PFMs are ICICI Prudential Pension Funds Management Company Limited, IDFC Pension Fund Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, SBI Pension Funds Private Limited, UTI Retirement Solutions Limited.

In the Banking Industry In terms of Bank Wage Settlement dated 27.04.2010 the employees who join the services of Banks on or after 01.04.2010; and they shall be covered by a Defined Contributory Pension Scheme, which shall be governed by the provision of the Contributory Pension Scheme introduced for employees of the Central Government w.e.f. 01.01.2004, and as modified from time to time.

More Indian PSU are joining to provide NPS to their employees.

4.Individuals - New Pension System (NPS), Regulated By PFRDA, is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India. It has the following broad objectives:
  • Provide old age income
  • Reasonable market based returns over the long term
  • Extending old age security coverage to all citizens
  • Swavalamban Yojana for All Citizens of India & NPS (For economically disadvantaged sections )

NPS has the following feature and benefits

  •     Open to all Indian citizens including NRI's aged between 18-60 yrs.

  •     Pension contribution invested by professional PFM's.

  •     Lowest Fund Management charges.

  •     Regulatory efficiency.

  •     Offers/portability - account can be operated from anywhere in the country.

  •     After subscribers retire at the age of 60, they may choose to purchase an annuity for an amount 40% or greater than it and withdraw the remaining pension wealth in lump sum.

  •     Subscribers have an option of selecting an annuity which will pay pension to them/their nominee.

  •     Withdrawable facility under Tier-II Account.

  •     No Entry and Exit Loads with Transparent Fee Based System.

CAG has appreciated JK’s financial achievements: FinMin

Dispelling the notion that the state is wholly and solely dependent on central assistances, Minister for Finance, Abdul Rahim Rather Monday said the tax share distributed among different states comes from the central divisible pool under the provision of the Constitution.

 He said it is the Finance Commission which decides the grants for different states out of the consolidated fund of India. “So it is not correct to say that state’s dependence on Central Assistance is increasing.”

In his exhaustive one-and-a-half-hour reply to the general discussion on the budget in the legislative assembly today, Rather said that the Comptroller and Auditor General of India in the Draft Report on State Finances for the year ending 31.03.2012 has appreciated the financial achievements of the J&K state.

Quoting the CAG report, he said the State has made good use of the opportunities presented by the increased economic activities to substantially increase tax revenues. “There has been a record mobilization of commercial taxes and stamp duties in 2011-12, and the State’s own revenues have shown a very high growth. It is to the credit of the Government that the State’s dependence on non-debt resources from the Central Government (as percentage of total expenditure) has come down from 67% in 2006-07 to 63% in 2011-12.

 The CAG has said that even as concerns remained about delay in completion of ongoing projects, the State Government’s capital expenditure has registered significant and steady increase.

 “Likewise, it has appreciated the State’s for its switchover to Government Banking with RBI with effect from 01.04.2011 after liquidating its entire overdraft with J&K Bank as on 31.03.2011 with Special Central Assistance in the form of Grant-in-aid of Rs. 1000 Crore,” he said.

 During 2011-12, the interest burden on overdraft/ways and means advances came down by over Rs. 220 crore as a result of this switchover to new banking arrangement.  Report has also patted the State for taking significant decisions like introduction of National Pension Scheme (NPS) bringing more items under the ambit of VAT, some services under tax net, computerization of Commercial Taxes Department to be completed by 2013 and a host of other institutional and sectoral reform measures. The arrears in the accounts of PSUs are being liquidated, he said.

 Giving detail about the measures to revamp the powers system in the State, Rather said that a new hydle policy has been announced in 2011 to facilitate construction of new power projects and contain Transmission and Distribution losses.

 He said a whooping sum of Rs. 3,875 crore has been spent to purchase power this year against a revenue of Rs. 1460 crore thereby causing losses to the tune of Rs. 2400 crore.

 About employment, Rather said that the government is committed to provide over 70,000 - 80,000 jobs in Government sector during next two years adding that around 50,000 youth were recruited in the State during last four years.

 He said government jobs alone cannot solve the problems of unemployment as the volume of educated unemployed youth is very huge. He said government announced SKWEPY, Seed Capital Fund scheme, Youth Start up Loan Scheme, UDAAN and Himayat schemes to train the youth so that they are able to put up their own income generating units.

 Responding to the demands of most members, the Finance Minister announced to raise the honorarium of Panchs from Rs. 300 per sitting to Rs. 1000 per month. He said the rate of honorarium proposed for the Sarpanchs and Panchs of the State is highest as compared to the neighbouring States.

 Responding to the demands of the members, Rather announced that government has almost made the agriculture sector tax free. He said it was imperative to develop infrastructure for the post-harvest management of fruit so that it reaches to the terminal Mandis in fresh condition and with original flavour.

 He gave out figures to assert that Agriculture Sector has grown by 11.66% in current year (at current prices and 3.84% at constant prices and that its growth is better than the growth rate of last year.
 As many as 32 members participated in the discussion and gave their valuable suggestion to make it more growth oriented.


Financial reforms: The long road to becoming a Super Power

There has been a long list of financial sector reforms in India and much of the impact will actually be felt some time down the line. There might be some initial enthusiasm as the various steps in reforming the financial sector are announced but the real benefit is actually going to come only later.  The introduction of the Goods and Services Tax (GST) or the Direct Tax Code (DTC) and even pension sector reforms will ensure that the financial landscape of the future is completely different from what is actually witnessed right now.

A big area as far as the financial sector is concerned is that of taxation and there have been two major steps in this direction that will change the nature of the tax system in the country. On the direct taxes side is the proposed DTC which is expected to make the tax guidelines simple and easy to understand and implement. Currently the Income Tax Act is so complicated that it is difficult for many people to actually understand what it stands for and how this is to be implemented. Various drafts of the DTC have been proposed and even in the recent Union Budget the finance minister talked of introducing the bill in Parliament as soon as possible. This will reform the manner in which the direct taxes are calculated and collected. Simplicity will lead to higher compliance in the years ahead boosting the total revenue collections making more money available for use to improve the nation. Another fact is that several measures present in the DTC code have already been introduced in the current income tax act making the enjoying of these facilities easier for the individual in their day to day operations.

The other game changing event is the introduction of the GST across the country. Today the entire landscape is dotted with lots of indirect taxes like excise, sales tax, octroi, service tax etc that increase the tax burden on the final consumer. There is also no uniformity in the process as the situation can change from state to state. This will be replaced with a single GST across the country which will make the process smooth as there can be credit taken for the inputs that are used in the providing of the goods and services. This will ensure that there is a proper way in which the process is completed as it will eliminate all the multiple taxes that are currently witnessed and replace this with a single tax. The states are working out the details that include some of the sticky points related to the implementation of the new system but there is headway being made and this is the good news for the economy. This will ensure that doing business is easier leading to higher economic activity across the nation in the coming years.

There are various sectors in the economy that are important for the future well being of the citizens. The bill to regulate the pension sector is a move in the right direction as it will ensure that this nascent sector is able to get the required support for its growth. With the changing landscape across the country and the world it is no longer possible for the government or even private entities to guarantee pension for individuals in their old age. This is the reason why people have to look for options on their own to ensure that these facilities are available to them by saving and investing over a period of time. The right measures as provided by the pension bill and the expansion of the National Pension Scheme (NPS) will be a way in which more and more individuals will have a choice in front of them to save for their future. It will also ensure that over a period of time they are able to secure their future to a greater degree with confidence.

(The writer is a certified financial planner)


Swavalamban Benefit for NPS Account Holders

Eligible Account Holders are Required to Submit Declaration form to the PoPs

Under the Swavalamban guidelines approved by the Govt. of India, all NPS accounts opened in 2009-10 will be entitled to the benefit of Government co-contribution of Rs. 1,000 subject to fulfilling the prescribed eligibility criteria. A list of eligible account holders is available on the Website of Pension Fund Regulatory & Development Authority (PFRDA) as well as the concerned PoPs.

The PFRDA has requested the concerned NPS account holders to submit the requisite declaration form to the PoPs at the earliest to avail of the Swavalamban benefit. A copy of the Swavalamban declaration form can be downloaded from the website of the PFRDA / PoPs / NSDL.


Monday, 8 April 2013

Forced saving in equities good for retirement corpus

There is many a slip between the cup and the lip. This adage is apt for the New Pension Scheme (NPS), which was rolled out a few years ago. The objective behind the NPS is noble indeed. The provision of post-retirement income in the form of pension to any Indian citizen. While Central Government employees were the first to sign on (albeit compulsorily), the initial proponents of the scheme also sought to make it popular among those who were not covered by any formal pension
program. It is also the only pension scheme so far, to offer its subscribers an opportunity to participate in the equity markets during the accumulation stage.

Despite the stated lofty intentions, the NPS has been beset with a slew of procedural and regulatory hurdles. A few of these are:

  •     Lack of parliamentary ratification of the Pension Fund Regulatory Development Authority (PFRDA) Bill.
  •     The lack of interest displayed by the marketing agencies, owing to the poor incentive structure.
  •     The ostensible lack of focus on the part of the fund managers, owing to the abysmally low fund management fees (0.009% until recently).
  •     The seemingly complicated structure, involving Tier I and Tier II accounts, with compulsory annuitisation on attaining the age of sixty.

While the average subscriber is not too concerned about the delays in parliamentary recognition, they have been generally apprehensive about the scheme's exposure to equities. This could be due to two reasons :

  1.     There is a legacy of choosing Government guaranteed schemes such as Public Provident Fund (PPF) and Employee Provident Fund (EPF), where safety of capital is accompanied by high visibility of returns.
  2.     The prevailing belief among many individuals is that equity markets are unpredictable (and consequently risky) and, therefore, it is not prudent to entrust one's retirement related investments to the stock market.

The PFRDA had foreseen such resistance. Hence, they offered three asset classes to their subscribers :

    E Class: Investment in Index funds that replicate the portfolio of either BSE Sensitive index or NSE Nifty 50 index.
    G Class: Investment would be in Central and State Government Securities..
    C Class: Investment would be in fixed income securities other than Government Securities.

Subscribers could choose investment portfolios which contained different proportions of these three asset classes, based on their comfort level. Also, since investment in equities was restricted only to index funds, it accorded a (psychological) veneer of safety to the entire exercise.

However, last week, the PFRDA expanded the basket of eligible equities by permitting the designated NPS fund managers to invest in any stock listed in the derivatives segment. In other words, the eligible universe of stocks has risen from around 50 to 149. Also, fund managers are free to decide the weightage of individual stocks in their portfolio.

Several industry experts have denounced this latitude accorded by PFRDA on two grounds :

  1.     The whole exercise was conducted in a surreptitious manner, with not enough opportunity having been provided for discussion and deliberations
  2.     The free rein given to fund managers will induce them to adopt a cavalier approach with respect to subscribers' monies and may also encourage corrupt practices.

But there are arguments to be made in favour of PFRDA's move. Some of them are as follows:

  1.     The current list of designated NPS fund managers, comprises reputable public and private sector institutions. All of them have extensive fund management experience and, therefore, they are aware of their fiduciary responsibilities.
  2.     It is a myth that index funds are 'safe' and non-index stocks are not. Volatility is part and parcel of equity investing and merely investing in an index fund does not shield you from the inherent vagaries of the stockmarket. In fact, this myth has been the cause of disillusionment among many mutual fund investors, in the past.
  3.     Today, NPS fund managers are adequately compensated for their efforts (at 0.25% of the assets managed). Hence, there is less incentive for shenanigans as they would not like to be rendered ineligible, due to any scandal. Sure, a rogue employee may pop-up periodically, but that may happen even in today's regime.
  4.     The internal prudential guidelines of the fund management companies, will ensure that the lion's share of the portfolio will comprise the same index stocks that they used to invest in earlier. In fact, fund managers may now be susceptible to the charge of being called 'Index-Huggers,' as the other stocks could comprise only a minuscule proportion. This is often seen even in the mutual fund schemes being managed by many of these same managers.
  5.     Every fund manager knows that they are under the glare of the Regulator and the media. Hence, they will not be unduly adventurous.

We should welcome this freedom being accorded to the managers. Over the past one year, the PFRDA has taken several pragmatic steps to incentivise their stakeholders and popularise the scheme. Therefore, this latest move should not be seen as regressive in any manner.


Saturday, 6 April 2013

NPS gives near double-digit returns

NEW DELHI: The National Pension System (NPS) is fetching near double-digit returns, which is at least a percentage point higher than what employees' provident fund or public provident fund (PPF) offer.

NPS is a voluntary longterm saving scheme for the private sector but mandatory for those who joined the government from 2004.

According to the latest data , in case of the private sector, the top performance was on offer for those who had a significant exposure to corporate bonds with all five fund managers — SBI, UTI, ICICI, Reliance and Kotak - offering between 13.4 per cent and 15 per cent over the last one year. Even since inception , the returns have been in the 8.89-11 .94 per cent range.

Corporate bonds are followed by government securities where the one-year return has been over 13.5% for all fund managers. For equity, where maximum exposure to shares is capped at 50%, returns over the last one year have ranged between 8.45 per cent and 11.56 per cent.

The Employees Provident Fund Organization has fixed the interest rate for 2012-13 at 8.5 per cent, while the government has announced that PPF would fetch 8.7% this fiscal. UTI's Retirement Plan, a mutual fund scheme that has been around since 1994, has offered returns of 10.5% since its launch, while one-year return is 8.62 per cent.

The flip side is that unlike PPF or EPF, the retirement corpus is subject to tax, although the government has promised to amend the law. But if you choose to use the entire amount to buy annuity, you may avoid paying tax.

Individuals , who are not part of the government set up, can invest anything upwards of Rs 6,000 a year under NPS and can withdraw 40 per cent of the amount when they turn 60. The balance 60 per cent has to be used to buy an annuity or a pension plan from an insurance company that will earn you a monthly income for the rest of your life.

When it comes to private sector, the scheme was opened in 2009 but has been slow to take off as fund managers have not pushed it too much given the low commission earned by them. As a result, a bulk of the funds, which added up to nearly Rs 29,000 crore at the end of March 2013, came from central and state government employees and NPS Lite, which is meant for low-income groups.

Here, the returns seem to be even better as equity exposure is only 15%. Latest available data shows that over the last one year, central government employees earned over 12%, and at least 9.67 per cent since inception, depending on the fund manager.

For state government employees, one-year returns range between 12.8 per cent and 13.3 per cent (see table).
Unlike the private sector, for government employees who joined from 2004, 10% contribution to pension fund is mandatory with their employer providing a matching contribution .


Tuesday, 2 April 2013

EPFO-NPS turf war: Companies tread neutral ground

The Employees' Provident Fund Organization (EPFO) and the National Pension System (NPS), the two pension scheme operators in the country, seem to be heading for a turf war. The NPS is wooing subscribers from the private sector, earlier a domain of the EPFO.

NPS has reported so far, 522 private companies, including Reliance Industries Limited (RIL), Reliance Group, Colgate Palmolive, Cognizant, Capgemini, Pantaloons and Wipro, have opted for it.

However, companies have chosen to remain neutral in their stance. For instance, Wipro told Business standard its relationship with NPS didn't mean an end to its EPFO membership. "NPS is over and above the mandatory contribution towards EPF," said Samir Gadgil, general manager and global head (compensation and benefits), Wipro Technologies. He added for Wipro, NPS was introduced in July 2011, and this was voluntary. (SECURING THE FUTURE)

Annual NPS funds from Wipro vary according to the contribution amounts opted for by individual subscribers. On an average, annual contribution stood at Rs 4-6 crore, Gadgil said.

For RIL employees, too, NPS membership is voluntary. In Delhi, the company issued a circular to its employees, asking them to choose between NPS and the company's EPFO pension scheme. An RIL employee said no staff member was being forced to opt for NPS.

Infosys said from April 1, it would introduce the NPS option for its employees. "We are looking to facilitate a process where employees can choose to have NPS as part of their retirement benefits from 2013-14," the Bangalore-based company said.

EPFO denies it has lost any of its subscribers to NPS. A senior EPFO official said, "We are not aware of any EPFO subscriber leaving us for NPS. You show us one person who has left us for NPS."

Officials in the Pension Fund Regulatory and Development Authority (PFRDA) said their system couldn't track whether companies had entirely shifted from EPFO to NPS. They, however, said a lot of private companies were showing interest in joining NPS. "Many companies from the private sector have joined NPS. But we can't track from where the money is coming. NPS has the advantage of lower costs and higher returns," said PFRDA Chairman Yogesh Agarwal.

EPFO gives 8.5 per cent returns to subscribers. As of August-end, 2012, returns offered by NPS stood at six-11 per cent.

Recently, Finance Minister P Chidambaram had exhorted private companies to promote NPS, a call that led to discomfort within EPFO.

Analysts say the scales tip in favour of EPFO, as it offers guaranteed returns, unlike NPS. For investors, the primary aspect was security and EPFO had the most reliable fund, said financial analyst Amit Sethi of AMVI Financial. He added the difference in rates wasn't significant. The government wouldn't want to harm EPFO, which had a bigger subscriber base than NPS, he said.

EPFO's recent announcement of investment in private bonds, as well as a more aggressive entry into the bond market in general, pointed to better returns in the future, Sethi said. In two years, EPFO returns would stand at 8.75-9.25 per cent, while NPS returns weren't expected to see such a rise, he said, ruling out a threat to EPFO.

While EPFO has a corpus of Rs 4.5 lakh crore, in four years, NPS has raised only Rs 28,493 crore. On an average, EPFO adds Rs 50,000 crore to its corpus every year.

EPFO is pushing for an amendment to the EPF Act to raise the salary ceiling for employees from Rs 6,500 to Rs 10,000 or Rs 15,000. This would ensure the scheme is attractive to those earning high salaries as well. EPFO is mandatory for those earning up to Rs 6,500 a month; for the rest, it is voluntary.


Monday, 1 April 2013

Returns on NPS funds only marginally better than EPF

NEW DELHI: National Pension Scheme (NPS) funds for government workers have not been able to beat the debt-based Employees' Provident Fund (EPF) by a significant margin in the past five years.

The five-year returns on the NPS fund managed by UTI Retirement Solutions, assuming that the investor was following a systematic investment plan ( SIP), work out to 8.78% while the Employees Provident Fund has yielded 8.62% during the same period. The calculation is based on the internal rate of return (IRR) of monthly contributions from April 2008 till March 2013.

"There cannot be a significant difference because the government allows only 15% of the corpus to be invested in equitie,"says Yogesh Agarwal, chairman of the Pension Fund Regulatory and Development Authority (PFRDA). The current allocation of the UTI managed scheme is not known but as on September 30, 2012 it had 8% of its corpus invested in stocks.

The PFRDA wants that government employees should also be allowed the same investment choices as other investors in the National Pension Scheme. The ordinary investor in the National Pension Scheme is allowed to define his asset allocation and can put up to 50% of his corpus in equity funds. He can also change his asset allocation or switch his pension fund manager once a year.

"Once the government makes the monthly contribution to the employee's National Pension Scheme account, its responsibility ends. It should not stipulate how that money should be invested," says Agarwal.

However, the equity funds of the five pensions fund managers for the general public have also performed poorly since their launch four years ago in May 2009 casting doubt on the theory that a greater exposure to equity could have driven up returns. The average fund has yielded 4.55%, which is marginally better than the 4.12% returns from SIPs in the Nifty over the same period.


Sunday, 31 March 2013

Muthoot Finance to implement NPS for its employees

CHENNAI: Gold loan company Muthoot Finance has launched the National Pension System (NPS) initiative for the employees of the company and the group.

For the employees of the company, this will be a distinctive social security benefit and a unique Staff Welfare Scheme as the employee contribution to NPS will be linked with a contribution by the company. Muthoot Finance Ltd in its capacity as Point of Presence (POP) will absorb certain applicable POP related transaction charges, according to a company statement.

NPS, a social security measure of the Government of India launched by the Pension Fund Regulatory Development Authority (PFRDA) has been approved by the Board of Directors of the Muthoot Group for implementation as an optional scheme for the employees.

This long-term retirement savings plan for the Indian citizens in the 18-60 age groups has the provision for regular pension at the end of the tenure.

While central and state government employees have to subscribe mandatorily, it's optional for others. The minimum annual contribution is Rs 6,000, which can be paid at once or in installments of at least Rs 500, the statement said.

"Retirement planning is a very important aspect of financial planning wherein one needs to save in order to enjoy the desired post-retirement lifestyle. Muthoot Finance has always been concerned about the welfare of its employees and this initiative would help build a retirement fund for our employees," said George Alexander Muthoot, Managing Director, Muthoot Finance.


Funding your future

India’s National Pension System, exposed to the vagaries of the stock market and unable to help investors assess retirement income, fallsshort of worker expectations. The NPS should do more to meet a basic social security goal.

The National Pension System (NPS), which was opened up from May 2009 for all citizens to join on a voluntary basis, is considered a good option for retirement planning.

V. R. Narasimhan, Chief Executive Officer, Kotak Mahindra Pension Fund, says the pension saving scheme under the NPS model is the most economical and flexible for pension wealth accumulation. Kotak Mahindra Pension Fund is a pension fund manager appointed by the Pension Fund Regulatory and Development Authority (PFRDA) to manage the corpus under the scheme.

Ever since the NPS was made available for all citizens, its subscriber base has increased substantially. The response was good after the low-cost Swavalamban scheme was introduced, making it affordable to the weaker sections. The customised version of the core NPS, known as the NPS corporate sector model, launched in December 2011 has expanded its base. In the last two months, a significant addition to corpus has taken place. As on March 2, 2013, the subscriber base was 44.94 lakh, up from 42.17 lakh on January 5. On March 31 in the previous year, the total number of subscribers was 31 lakh, against 18.60 lakh in 2010-11.

The pension scheme has attracted workers in the unorganised and private sectors, providing a return of 11.55 per cent in 2011-12 under its corporate debt segment category (scheme-C). Risk-averse investors can opt for 100 per cent investment in government securities, Mr. Narasimhan says.

The corporate model has evoked a good response among public and private sector employees. With a rise in number of corporates subscribing to it and a significant increase in government employee enrolment, the corpus has grown to Rs. 28,493 crore as on March 2, 2013, from Rs.15,163 crore in 2011-12.

C. R. Chandrasekar, Founder and CEO, fundsindia.com (which markets NPS products), says the NPS is among the best  schemes available.  The transparency, low cost, participation in capital markets (though equity exposure is limited to 50 per cent), control in the hands of the investors, ability to switch fund types and fund managers make it attractive. 

The NPS works on a defined contribution basis with two tiers: Tier-I and Tier II. Under the defined contribution structure, subscribers can decide where the money can be invested. For a Tier-I account, both employer and employee can contribute equally. Employee contribution is mandatory, while employer’s is optional. Tier-I account does not allow any withdrawal before the age of 60 years.

The Tier-II account is a voluntary savings account, and it can be opened only if one has an active account. Tier-II account offers subscribers the option to withdraw their savings at any time. Any individual between 18-60 years can join the NPS. The retirement age for both Tier-I and Tier-II is 60 years.
Market-linked returns

The returns are market-linked, and there is no guarantee of assured returns. However, subscribers can invest in government securities for assured return.

D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors, says a positive factor is that the funds collected under the NPS can be invested (up to 50 per cent) in the stock market, and the overall return can be higher than that provided by provident funds. “There is resistance from labour unions as they fear investing in the stock market by the NPS can erode their capital. However, history suggests that investing in the stock market can provide much higher return over a long period, if it is well managed,” he says.

NPS fund management fee is fixed at 0.0102 per cent of the invested amount for government employees and 0.25 per cent for others. Other charges such as account opening, maintenance and transaction charges are nominal.

Jimmy A Patel, Chief Executive Officer, Quantum Asset Management, thinks the NPS products need to be promoted more. Investors get a chance to choose the fund manager and even the investment profile they would like based on their risk appetite.
Tax benefits

The contribution from employees to NPS Tier-I up to 10 per cent of basic and dearness allowance is tax exempt under Sec 80 CCD (i) with a ceiling of Rs. 1 lakh. From April 1, 2012, employer’s contribution up to 10 per cent of basic and DA to employee’s account is treated as business expenses and adjusted in the profit and loss account. The NPS now comes under the EET (exempt, exempt, tax) regime. Current laws state that the funds will be taxed on withdrawal and returns from annuity insurance plan after retirement will not be tax free.

The PFRDA will allow NPS investors to withdraw a lump sum at the time of exit, as against the current practice of annual ‘phased withdrawals.’

Subscribers can withdraw on attaining the age of 60 and up to 70 years from the pension system. At exit, subscribers must invest at least 40 per cent of pension wealth to purchase a life annuity from any IRDA-regulated life insurance company. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60 or in phases between age 60 and 70.

Any subscriber who desires to withdraw before 60 years of age is required to invest at least 80 per cent of the pension wealth in a life annuity from any IRDA-regulated life insurance company. The balance 20 per cent may be withdrawn as lump sum.


Friday, 29 March 2013

Should changes in the New Pension Scheme worry you?

What is NPS? Most people can be pardoned if that is their response to a question about their views on the recent changes in the New Pension Scheme, which is more popularly known as NPS. This is despite the fact that NPS has been available for the general public since the last four years.

Let's take a quick look at what is NPS. Any Individual can start a NPS account by contributing money regularly and if the individual is employed, his employer can also contribute money up to a certain limit. The account holder can choose the proportion of money that will be invested between equities, securities and other debts with a maximum allocation of 50 per cent allowed for equities.

There is a default proportion between equity, debt and government securities depending on the account holder's age if he does not or cannot make a choice.

The account holder can choose from among several fund managers and keep changing his choice of fund manager periodically. As far as equity investment is concerned the fund manager was allowed to invest only in nifty or sensex index funds or was allowed to re-create either of these indexes.

What has changed?

In a recent amendment, PFRDA, which regulates NPS, allowed fund managers to invest specifically in equity shares that meet a certain criteria and not necessarily recreate the Nifty or the Sensex. They have also been prohibited from investing in index mutual funds though they can choose to continue to re-create the index rather than invest actively. An investment in an index fund is essentially a passive style where the fund manager just mechanically recreates an index whereas when he invests in specific equity shares he exercises judgment, which may go either ways. So the return on an index fund is likely to mimic the return on the underlying index whereas the returns on an actively managed equity fund can be widely different depending on the skills and luck of the fund manager.

Who will be impacted?

As of now, it affects about two lakh private sector NPS subscribers and about 15 lakh NPS Lite sector subscribers who have voluntarily opted for NPS. Most of the private sector NPS subscriber base has been added in the last 20 months after the Income tax act was amended by budget 2011 to allow a separate deduction without any upper limit in value terms in respect of contribution made by employer up to 10 per cent of the salary.

The whole structure of NPS was designed to reduce the inherent risks in any locked in long-term investment and keeping the costs to a minimum. It had assumed an actively involved subscriber base that would monitor the performance of various fund managers and switch actively from one fund manager to another depending on performance.

In practice, it is the most vulnerable NPS lite subscribers who could be most impacted. The biggest assumption of an actively involved subscriber base clearly isn't true for the NPS lite subscribers (or for that matter the grass root level entities that facilitated their NPS entry). Even if a subscriber wants to be active the availability of information and research/monitoring infrastructure (think companies such as valueresearch, etc.) that can support such activism is absent. In fact, even without allowing for active management, the equity schemes of different fund managers have varied quite significantly and despite avid research we could not find the data or information that would allow us to guess the reason for such significant variation among different index funds.

Think of it like this. Here is a scheme that locks in subscribers for long periods of time with an inert large subscriber base and very little infrastructure to support even the activists among the subscribers and then adds the risks of active fund management to the mix – it has the potential to become quite a serious issue.

I am sure safeguards will be added on in due course and an information and data infrastructure will be created to assist the subscribers or their representative bodies to take an informed decision on the choice of a fund manager. Till then please do worry if you are one of the two lakh people who has an NPS account or are running an organisation that facilitated opening of NPS Lite accounts. Please keep an eye out on the performance of the fund managers and switch if your fund manager is among the laggards.

Author is CEO, Apnapaisa.com harsh@apnapaisa.com


On exit, PFRDA allows lump sum NPS withdrawal

To give more flexibility to subscribers of the New Pension Scheme, the Pension Fund Regulatory and Development Authority (PFRDA) has moved away from the earlier norm of phased withdrawal and has allowed deferred withdrawal of corpus.

The pension regulator has said that subscribers will be given a specific option to defer or time the entire lump sum withdrawal, subject to a maximum of 60%, at the time of exit from the National Pension System (NPS), rather than forcing them to choose a certain percentage each and every year while going for the existing phased-withdrawal option.

The regulator has allowed the deferred withdrawal option, whereby the subscriber can time the lump sum withdrawal allowed under the NPS at the time of exit, with immediate effect. Under this, the subscribers at the time of exit from the NPS can choose to defer the withdrawal of eligible lump sum and stay invested in the NPS.

The subscriber can withdraw the deferred lump sum amount at any time before attaining the age of 70 by giving a withdrawal application or notice. If no such notice is given, the accumulated pension wealth would be automatically monetised and credited to his bank account upon attaining the age of 70.

Also, the PFRDA has empanelled seven Annuity Service Providers (ASPs) for providing annuity services to NPS subscribers. As per current NPS exit norms, the subscriber is mandatorily required to select one of the empanelled ASPs along with an annuity scheme from those offered by the chosen ASP at the time of exiting from the NPS and seeking withdrawal of accumulated pension wealth (for reasons other than death of the subscriber).

Default option for annuity is to be exercised by the subscriber at the time of selection of the ASP and choosing of an annuity scheme, PFRDA has examined the matter and decided to assist the subscriber by providing a default option. The default annuity service provider will be Life Insurance Corporation of India.

In the default annuity scheme, the annuity for life with a provision of 100% of the annuity is payable to the spouse during his/her life on the demise of the annuitant and under this option, payment of monthly annuity would cease once the annuitant and the spouse die or after death of the annuitant, without any return of purchase price. However, where the corpus is not adequate to buy the default annuity variant and from the default ASP, the subscriber has to compulsorily choose an ASP who offers an annuity at the available corpus in the account of the subscriber.


Pension Fund Regulatory and Development Authority (PFRDA) sets limits on equity investment by fund managers

The appeal of the National Pension System (NPS) is headed for some extra polish. To ensure higher returns forinvestors, the Pension Fund Regulatory and Development Authority (PFRDA) on Monday rolled out a detailed set of investment guidelines.

The regulator has specified sectoral caps and limits on the amount of funds invested under the asset class E, which has a maximum exposure of 50% to the equity market. According to the new guidelines, funds under scheme E now have an investment exposure limit of up to 15% of pension fund managers’ equity portfolio to any particular sector.

“Investment in any equity stock of a sponsor group shall be restricted to 5% of the paid-up capital and 10% for a non-sponsor group company,” stated the circular.

Of the three schemes of NPS – C,G and E – the asset class E that has the maximum exposure will be invested in shares of the companies listed on the BSE or the NSE where derivatives are available or are part of benchmark indices. This means pension fund managers are allowed to invest directly in equity instead of index funds created by mutual fund (MF) managers. The new rules also allow fund mangers to pick up stocks from a basket of 149 eligible ones.

The change in guidelines related to investments in equities provides much elbowroom to pension fund managers to generate higher returns, believe experts. “In terms of asset allocation, I believe that investing in equities directly or through index funds does not make much of a difference to returns and risk objectives. The better-managed active funds in India have generated higher returns than passive index funds and to that extent, it will provide higher returns,” said a CEO of a domestic MF house, which also acts as one of the six NPS managers in India.

Asset class G invests a major chunk of the fund in state and central government bonds. Similarly, scheme C would be invested in credit risk bearing fixed income instruments. “This option will make the product more competitive as there will be variants in terms of performance by fund managers. This will give leeway to fund managers to adopt an alpha strategy,” said a senior pension fund manager.

Contrary to fears in some circles, the revised guidelines permitting NPS managers to invest directly won’t lead to any substantial increase in risks, given that the guidelines mandate restrictions on securities and sectoral limits. The PFRDA also brought out a roadmap for all private pension fund managers for investing directly in the equity market.

The managers are not allowed to invest in any of the initial public offers (IPO) and follow-on public offers (FPO). Even unlisted shares of companies stay off-limits. In case deployment of funds in any of these schemes is pending, those funds are allowed to be invested in short-term deposits of commercial banks, call deposits and short-term money market instruments with an investment ceiling up to 10% on temporary basis.

NPS, a low-cost pension product with three different schemes based on the exposure to equity and fixed income instruments, was set up in 2009, but due unfavourable distribution incentives, the product did not quite take off as expected. As per the data released by the PFRDA, total number of subscribers covered under NPS stands at 44,93,589 crore as of first week of March 2013. Last November, the regulator has allowed to hike the expense ratio, or the distribution cost of the product, to 0.25% from 0.0009%.


Thursday, 28 March 2013

Saturday, 23 March 2013

At Rs.10,359 crore, aam aadmi gets the lion’s share

Delhi’s Aam Aadmi is the centre of the budget proposals of chief minister Sheila Dikshit, who is seeking to win a landmark fourth consecutive term in the assembly elections scheduled for later this year.

A series of sops were announced for widows, persons with disabilities, transgenders and labourers in the unorganised sector. The social sector got the lion’s share of the budget.

Of the total plan outlay of Rs.16,000, a whopping Rs.10,359 has been earmarked for the social sector, making up for the 65% of the plan outlay.

Dikshit announced the extension of the deadline to enrol for the Annashree Yojana till July 31, noting that a number of eligible people had been left out.

The Delhi government had announced the cash-for-food programme last year under which Rs.600 is transferred directly to the bank account of the seniormost female member.

Only 31,617 beneficiaries have been covered till mid-March while the government was hoping to add at least 80,000.

Those who enrol now will start getting the benefit from April. The government has decided to include widows in the eligibility list of ‘Annashree’, who are not covered by government’s baseline survey so far.

“They will also get benefits from April itself, and this money would be in addition to the pension that they are otherwise drawing from the government. They would be eligible for enroling at any time,” said Dikshit.

In its bid to appease the informal and the unorganised sector workers — which constitutes a huge vote-bank — a new pension scheme is being launched for them by the Delhi government.

To be named Dilli Swavalamban Yojana (DSY), this will be a co-contributory pension scheme, in collaboration with the ‘Swavalamban’ scheme of the Union government.

“My government will make a contribution of Rs.1,000 per annum along with an equal sum by the Centre and a contribution not exceeding Rs.12,000 from the subscriber,” said Dikshit.

The labour department has been asked to finalise the scheme which will be linked with Aadhaar. Dikshit announced a monthly pension of Rs.1,500 per month to persons with disabilities and women in distress once they attain the age of 60 years, as against the earlier Rs.1,000.

A residential school for the SC/ST/OBC and students belonging to the minorities will also be constructed.


Swavalamban Scheme: Operational Guidelines

The Scheme and its applicability

1.The scheme will be called Swavalamban Yojana. It will be applicable to all citizens in the unorganised sector who join the New Pension System (NPS) administered by the Interim Pension Fund Regulatory
and Development Authority (PFRDA).

Benefits under the Scheme

2.Under the scheme, Government will contribute Rs.1000 per year to each NPS account opened in the year 2010-11 and for the next five years, that is, 2011-12,2012-13 and 2013-14 upto 2016-17. The benefit will be available only to persons who join the NPS with a minimum contribution of Rs. 1,000 and maximum contribution of Rs.12,000 per annum.


3.Unorganised sector:

For the purpose of this scheme, a person will be deemed to belong to the unorganised sector if that person:

is not in regular employ
ment of the Central or
a state government, or an
autonomous body/ public sector underta
king of the Central or state
government having employer assi
sted retirement benefit scheme, or

is not covered by a social security
scheme under any of th
e following laws:

Employees' Provident Fund and Mi
scellaneous Provisions Act,1952

The Coal Mines Provident Fund and
Miscellaneous Provisions Act,1948

The Seamen's Provident Fund Act, 1966

The Assam Tea Pl
antations Provide
nt Fund and Pensi
on Fund Scheme
Act, 1955

The Jammu and Kashmir Employees' Provident Fund Act, 1961
All other definitions as given in the N
PS offer document will
apply to the terms
used in this scheme.


5.The scheme will be applicab
le to all persons in the unorganised sector subject
to the condition that the
benefit of Central Go
vernment contribution
will be available
only to those persons whose contributi
on to NPS is mi
nimum Rs.1,000 and
maximum Rs. 12,000 per annum, for
both Tier I and II taken t
ogether, provided that
the person makes a minimum
contribution of Rs. 1000 per annum to his Tier I NPS

6.As a special case and in recognition of
their faith in the NPS, all NPS accounts
opened in 2009-10 will be
entitled to the benefit of Gove
rnment contribution under this
scheme as if they were opened
as new accounts in 2010-11
subject to the condition
that they fulfill all the eligibility cr
iteria prescribed under these guidelines.


7.The scheme will be funded by grants fr
om Government of India. The grants
would be given such that
monthly payment in the sub
scriber accounts would be


8.A person will have the option
to join the NPS as an indi
vidual as per the existing
scheme or through the CRA
Lite approved by PFRDA.

9.At the time of joining th
e NPS the subscriber will
have to declare whether
he/she falls within the defi
nition of unorganised sector as
defined in para 3 above and
would also declare that his
contribution would range be
tween Rs. 1,000 to Rs. 12,000
per annum. If subsequent to opening
the NPS account it is f
ound that the subscriber
has made a false declaration about his eligib
ility for the benefits under this scheme or
has been wrongly given the benefit of government contribution under this scheme for
whatsoever reason, the enti
re government contribution w
ill be deducted along with
penal interest as may be specif
ied from time to time.
If the status of the subscri
ber changes to ineligible after
joining the NPS, he/she
should immediately declare so and the bene
fit of government contribution will not
accrue to the subscriber's
account after the date on wh
ich the subscriber becomes

10.At the end of each financial y
ear the CRA will, by 7th
April of the following
year, send to the PFRDA
details of the NPS accounts opened during the year,
showing separately the number of eligible
NPS accounts in which the subscriber's
contribution has been between
Rs. 1,000 and Rs. 12,000.
CRA will also send these
details with individual PR
AN to the Trustee Bank.

Exit from NPS

11.The exit from the Swavalamban Schem
e would be on the
same terms and
conditions on which exit from Tier-I account
of NPS is permitted, th
at is, exit at age 60
with 40% minimum annuitisation of pension w
ealth and exit before age 60 with 80%
minimum annuitisation of pension wealth. Howe
ver, the exit would
be subject to the
overriding condition that the amount of
pension wealth to be annuitised should be
sufficient to yield a mi
nimum amount of Rs. 1,000
per month. If the annuitised
pension wealth does not yiel
d an amount of Rs. 1,000 per
month, the percentage of
pension wealth to be annuit
ised would be increased
so that the pension amount
becomes Rs. 1,000 per month, failing whic
h the entire pension wealth would be
subject to annuitisation. This minimum pensio
n ceiling may be revised from time to


12.PFRDA may permit members of an exis
ting pension scheme to migrate to
NPS under such terms and conditions as may be approved by the Government.

Removal of Doubts

13.In case of any doubts on
the eligibility, operation of the scheme or any other
issue, the Central Government will decide th
e matter in consulta
tion with PFRDA and
the decision of the Central Government will be final.


Thursday, 21 March 2013

Economic Survey 2013: Making investors savvy is the new mantra

 NEW DELHI: The Economic Survey makes a strong pitch to raise financial literacy levels and called for scaling up efforts to increase investor awareness. It also backed the idea of spreading awareness about the New Pension Scheme (NPS) and outlined steps that the pension regulator should take to attract flow of long-term savings for development.

The survey said as part of the strategy to shift national spending from consumption to investment and combating inflation, efforts must be made to increase the opportunities for savers to get strong returns from investment. It said the ongoing efforts to educate investors need to be scaled up in a coordinated manner for spearheading financial literacy and promoting investors protection.

The survey said that lower levels of financial literacy, particularly among workers in the unorganized sector, non-availability of even moderate surplus and lukewarm response so far from most of the state/Union Territory governments to a co-contributory Swavalamban Scheme are the major challenges to universal inclusion of poorer sections of the society into the pension network.

"On the supply side, the lack of awareness about NPS and access points for people to open their accounts individually have been major inhibiting factors, which should be addressed by the pension regulator immediately," the survey said.

On the insurance side, it said limited choice and high cost of providing covers and assessing claims are issues that need to be addressed to make insurance funds an effective means of channelizing savings to investments.


Saturday, 16 March 2013

New Pension System(NPS)

PFRDA (Pension Fund Regulatory and Development Authority), India has opened New Pension System/ Scheme (NPS) to all Indian citizens starting today, on 1st May, 2009.

Its a safe, flexible and portable scheme introduced by Indian Government’s cell PFRDA; to replace the existing System of Pension System in the country and to provide income security after retirement.

PFRDA was established by the Government of India to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds.

Under this scheme, an investor can deposit their contributions in Bank Branches and Post offices all over the country. Unlike EPF (employee provident fund schemes), there will be only one number allotted to each investor, In case of change of job or location of job, it can be easily transferred to another branch. Each Investor will be allotted a unique 16 digit Permanent Retirement Account Number (PRAN) it will valid for life like current PAN number. There will be no need to open a new account every time you change job or location unlike the current EPF (Employee Provident Fund)

In starting, there will be 23 Points of Presence (POP) including PSU banks and post offices, and they will be provide account opening and other transactions facility. Following is the participating POP list: Allahabad Bank, Axis Bank, Bajaj Allianz General Insurance Co, Central Bank of India, Citibank, CAMS (Computer Age Management Services), ICICI Bank, IDBI Bank, IL&FS Securities, Kotak Mahindra Bank, LIC (Life Insurance Corporation of India), Oriental Bank of Commerce, Reliance Capital, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, SBI (State Bank of India), State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, South Indian Bank, Union Bank of India, UTI.

There will be multiple choices of investment and pension fund managers. All records will be kept by Central Record-keeping Agency (CRA). Central authorities and fund manager will be providing performance reports and NAVs (Net Asset value) regularly, so investor can track and invest accordingly. In Starting, NAVs will be declared once every year and switching fund manager will be allowed only once a year.

Currently seven fund managers have been chosen LIC Pension Fund Limited, SBI Pension Funds Private Limited, IDFC Pension Fund Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, UTI Retirement Solutions Limited and ICICI Pension Fund Management Company Limited that will manage investment money for NPS.

Read more: http://www.pankajbatra.com/india/new-pension-scheme-nps-india/#ixzz2NisQfCFO

Government to give Rs 2,065 cr more to Swavalamban pension scheme

NEW DELHI: In a move that will benefit 70 lakh unorganised sector workers, the Centre today approved an additional support of Rs 2,065 crore to Swavalamban Scheme, a pension programme, and also extended the funding support to subscribers for another two years.

Extending funding support for implementing the scheme under the New Pension System (NPS) from present three years to five years for all subscribers enrolled during 2010-11, 2011-12 and 2012-13 has been approved, HRD and Telecom Minister Kapil Sibal told reporters after the Cabinet meeting.


Pension scheme allows lump sum withdrawal on exit

NEW DELHI: Subscribers of the New Pension Scheme can now time the withdrawal of their money when leaving the income security plan, the pension fund regulator has said, moving away from the earlier facility of phased withdrawal.

The decision, announced by the Pension Fund Regulatory and Development Authority (PFRDA) on Thursday, comes into effect immediately.

It follows a feedback from stakeholders that subscribers should be given the option to defer or time the entire lump sum withdrawal (a maximum of 60%) at the time of exit from the scheme.

"The matter has been examined by the Authority and it has been decided to replace the 'phased withdrawal' option currently available with a 'deferred withdrawal' option, whereby the subscriber can time the lump sum withdrawal allowed under NPS (New Pension Scheme) at the time of exit, with immediate effect," the regulator said.


Thursday, 14 March 2013

PFRDA allows subscribers deferred withdrawal on exit from NPS

Pension fund regulator PFRDA has allowed investors in the New Pension Scheme (NPS) to opt for 'deferred withdrawal' of their money at the time of exit, as against the current practice of 'phased withdrawal'.

The replacement of 'phased withdrawal' with 'deferred withdrawal' was taken after PFRDA received feedback from various stakeholders, the pension fund regulator said.

Stakeholders informed PFRDA that subscribers be given a specific option to defer or time the entire lump sum withdrawal (maximum 60%) at the time of exit from NPS.

This would be a better option than forcing subscribers to choose a certain percentage each and every year while opting for the 'Phased withdrawal' option, including the year in which they are exiting the system.

Under the Deferred withdrawal facility, the subscribers at the time of exit from NPS can exercise the option to defer withdrawal of eligible lump sum withdrawal and stay invested in the NPS, according to PFRDA.

However, no fresh contributions will be accepted and also no partial withdrawals will be allowed during such a period of deferment.

The subscriber can withdraw the deferred lump sum amount at any time before attaining the age of 70 years by giving a withdrawal application or notice.

If no such notice is given, the accumulated pension wealth would be automatically monetised and credited to his/ her bank account upon attaining the age of 70 years.

As on March 2, NPS manages a corpus of over Rs 28,400 crore of 44.93 lakh subscribers. Around 2 lakh subscribers are from the private sector while 27 lakh are from central/state governments. Around 15.79 lakh subscribers are served by NPS-Lite, which is designed to ensure ultra-low administrative and transactional costs.

NPS is an initiative of Pension Fund Regulatory and Development Authority (PFRDA), the apex body established by the government to regulate and develop the pension sector. NPS has been extended to all citizens of India with effect from May 1, 2009.


NPS funds: Direct equity investment gets nod from regulator

India’s pension fund regulator has allowed fund managers of the National Pension System (NPS) to invest directly in stocks, in a move that seems to undermine the fundamental nature of a programme based on the principle of ensuring the safety of subscribers’ money.

This was done, without a debate or a public notification, through a 14 January internal circular sent by the Pension Fund Regulatory and Development Authority (PFRDA) to the five pension fund managers (PFMs) of NPS. These private sector fund managers thus were free to invest in stocks directly, instead of via index funds.

This dramatic shift was disclosed in a Mint investigation that was itself a follow-up to another change made by the regulator in February. PFRDA, in an emailed statement, defended the move on the grounds that it would allow fund managers to increase returns.

“By allowing active management, PFRDA intends to give freedom to each of the PFMs to enhance their performance and to optimize returns for the subscribers,” the statement said.

The new investment guidelines allow PFMs to invest in shares of companies listed on BSE and the National Stock Exchange and on which derivatives are available or are part of BSE Sensex or Nifty 50 index—a total of 149 stocks.

When NPS was set up in 2009, one of the three investment options offered equity exposure. Under this option, half the money would be invested in an index fund that would be created by the fund managers and half in debt for a mix of growth and safety.

But due to the slow uptake of NPS, PFMs weren’t able to raise enough money from subscribers to start their own index funds. According to the data provided by the regulator, the total number of subscribers
in the private sector is around 1.7 million for a corpus of Rs.1,590 crore as of February this year.

As a solution to this, PFRDA allowed PFMs to invest in the existing index funds offered by mutual fund companies (that have an expense ratio or an annual cost up to 1.5%). To this, PFMs were allowed to add a further fund management cost of 0.0009% until November last year and, subsequently, up to 0.25% annually, making NPS an expensive investment vehicle instead of the cheapest, as envisaged in the original design.
But this was an interim arrangement and PFMs are no longer allowed to invest in mutual fund companies. The change that was made in January will actually result in lower costs for investors, PFRDA said.
“Direct investment in stocks would entail reduction in cost of investment when compared to the cost of investment in an index fund,” the statement said.

The changes that have been made should also be seen in the context of another shift that took place over last year, allowing the entry of more PFMs.

A fund manager who did not want to be identified said PFRDA had opened up investment norms in January to include direct stock investing in order to accommodate the new fund managers who would set up shop and would struggle to garner funds to invest in the index.
The purpose for which NPS was set up has been defeated, said Dhirendra Swarup, former PFRDA chairman and one of those instrumental in its establishment.

“An actively managed equity portfolio is not the best way to go about for pure retirement plans, where safety is a very important consideration,” he said. “Those looking for higher rewards should invest through MFs (mutual funds) or directly in equities. A balanced risk-reward approach is better suited for NPS.”

Index funds eliminate the so-called fund manager risk since they mirror an index and also help in maintaining costs at the bare minimum.
By changing the investment guidelines from passive management of stocks to active management, NPS will place a greater risk on investors opting for equity. As mentioned above, an investor can invest up to 50% in the equity scheme.

While the decision raises questions about where NPS is headed, the manner in which the notification was issued is disquieting.
The change in the investment guidelines has not been followed by any public notification, although the product is meant to provide pensions to more than 300 million workers who currently don’t have a retirement product to put their money in.

PFRDA says it’s in the process of notifying these changes.
Mint spoke to at least three fund managers out of the five, who confirmed that PFRDA had made the change, although they declined to share the notification on the grounds that it was a sensitive matter. PFRDA, however, sent Mint the operative part of the investment changes. Mint also had access to a copy of the relevant communication in its entirety.

Given that a subscriber is required to lock in the investment until the age of 60, any modification to the investment pattern should have been brought to investors’ notice immediately, Swarup said.
“In all fairness, and for the sake of transparency, the change should have been preceded by consultations with all stakeholders,” he said. “Investment policy modification impacts the NPS subscribers. They should have been consulted by putting it in public domain and their feedback taken into account.”

The consultative process has become the norm with other financial sector regulators. For instance, the Insurance Regulatory and Development Authority recently issued a draft circular on the standardization of terms in health insurance before coming out with the final notification.

The Securities and Exchange Board of India circulated a draft on adviser regulations in August before issuing final guidelines in January. Likewise with the Reserve Bank of India, which seeks public opinion on draft guidelines before finalizing them.

“Transparency and objectivity should be the fulcrum of any regulatory decision. Ninety per cent of the investors don’t know what’s happening to their money. This is an individual account-based scheme where people should be able to decide. NPS needs greater transparency,” said Gautam Bhardwaj, director at Invest India Economic Foundation, one of those responsible for drawing up the blueprint for NPS.


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