Swavalamban Pran Card

Issuing PRAN Card For National Pension System For India

Plan For Retirement

What is a Pension? How to get Government Pensions...

What Is NPS Pension Scheme India

NPS CRA Provides Swavalambana Pensions For All...

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.

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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