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 )

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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.

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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.

http://www.greaterkashmir.com/news/2013/Mar/12/cag-has-appreciated-jk-s-financial-achievements-finmin-23.asp

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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)

http://www.moneycontrol.com/news/tax/financial-reforms-the-long-road-to-becomingsuper-power_840328.html

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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.

http://www.gservants.com/2010/12/29/swavalamban-benefit-for-nps-account-holders/

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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.

http://www.business-standard.com/article/pf/forced-saving-in-equities-good-for-retirement-corpus-113030900313_1.html

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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 .

http://articles.economictimes.indiatimes.com/2013-04-04/news/38278733_1_fund-managers-private-sector-nps-lite

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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.

http://www.business-standard.com/article/economy-policy/epfo-nps-turf-war-companies-tread-neutral-ground-113033000276_1.html

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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.

http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/returns-on-nps-funds-only-marginally-better-than-epf/articleshow/19315789.cms

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