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60, it is mandatory to use 40 per cent of the accumulated amount to generate pension, while the remaining amount can be withdrawn.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.


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