National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens.  It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India. Apart from offering an investment and retirement solution to employees, NPS also allows individuals to decide where will their pension fund be invested and in which proportion and permits partial withdrawal prior to retirement.

Structure

The subscribers are allotted a unique Permanent Retirement Account Number (PRAN). This PRAN will remain the same for a subscriber throughout his life and can be used from any location in India. PRAN provides access to two personal accounts:

• A Tier I Account which is a basic retirement pension account available to all citizens of India. It does not permit withdrawal of funds before retirement.
• A Tier II Account which is a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.

Regulator & Entities

• Pension Fund Regulatory and Development Authority (PFRDA): PFRDA is an autonomous body set up by the Government of India to develop and regulate the pension market in India.
• Point of Presence (POP): POPs are like a bridge between the NPS subscribers & NPS architecture. They are the subscribers’ first point of interaction. 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. Eureka Stock & Share Broking Services Ltd. is an authorised POP.
• Central Recordkeeping Agency (CRA): The recordkeeping, administration and customer service functions for all subscribers of NPS are being handled by the National Securities Depository Limited (NSDL), which is acting as the Central Record keeper for NPS.
• Annuity Service Providers (ASPs):  ASPs would be responsible for delivering a regular monthly pension to the subscriber after exit from NPS.

Eligibility & Coverage

• All Central Government Employees except Armed Forces.
• All State Government Employees.
• A Corporate which would have the flexibility to decide investment choice either at subscriber level or at the corporate level centrally for all its underlying subscribers.
• All citizens of India between the age of 18 and 60 years.
• A citizen of India between the age of 18 and 60 years who belongs to the unorganized sector or is not in a regular employment can open NPS -Swavalamban Yojana account. The subscriber of NPS -Swavalamban account should not be covered under social security scheme like Employees” Provident Fund and miscellaneous Provisions Act, 1952, The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, The Seamen”s Provident Fund Act, 1966, The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955 and The Jammu and Kashmir Employees” Provident Fund Act, 1961.

Contribution

• Minimum amount per contribution- Rs 500
• Minimum number of contribution- 1 per year
• Minimum annual contribution- Rs 6000 in each subscriber account

Investment Options

Pension funds invest the contributions in NPS accounts in three separate asset classes- equity (E), government securities (G) and a range of fixed income instruments (C). Subscribers can decide what proportion of their investment will be allocated to each of the three asset classes.

In case the subscriber does not exercise any choice with regard to asset allocation, the contribution is invested in accordance with the ‘Auto choice’ option also called Lifecycle Fund. In this option, the investment is determined by a predefined template that allocates funds according to the average expectation of investors at different stages of their life. The basic assumption, in line with industry guidelines, is that young people can afford to make riskier investments but security of return becomes more important as retirement approaches.

Table for Lifecycle Fund

Age	Asset Class E	Asset Class C	Asset Class G
Up to 35 years	50%	30%	20%
36 years	48%	29%	23%
37 years	46%	28%	26%
38 years	44%	27%	29%
39 years	42%	26%	32%
40 years	40%	25%	35%
41 years	38%	24%	38%
42 years	36%	23%	41%
43 years	34%	22%	44%
44 years	32%	21%	47%
45 years	30%	20%	50%
46 years	28%	19%	53%
47 years	26%	18%	56%
48 years	24%	17%	59%
49 years	22%	16%	62%
50 years	20%	15%	65%
51 years	18%	14%	68%
52 years	16%	13%	71%
53 years	14%	12%	74%
54 years	12%	11%	77%
55 years and above	10%	10%	80%

Benefits

NPS has various benefits, some of which are:

• NPS is a transparent and cost effective scheme wherein the contributions are invested in pension fund schemes and its value can be known on day-to-day basis. The account maintenance costs under NPS are the lowest as compared to similar pension products available in India.
• Till the retirement pension wealth accumulation grows over a period of time with a compounding effect. The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
• The procedure to open an NPS account and manage it is very simple.
• It is a flexible investment option since subscribers have control over the choice of investment made and fund manager.  Subscribers can easily switch over from one investment option to another or from one fund manager to another subject to certain regulatory restrictions.
• It is easily portable since an employee has a unique PRAN which will remain same even if he/she is transferred to another office/job.
• NPS is regulated by PFRDA with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust.
• Exposure to all the three asset class is not compulsory. You can put 100% of your investment in government securities (G) or other fixed income securities (C). But the equity part (E) of the allocation cannot exceed 50%.
• In the latest Union Budget, NPS has been given various tax benefits
  • NPS contributions are exempt u/s 80C of the Income tax Act, 1961 to the extent of Rs 1.5 lakhs. There is an additional deduction of Rs 50,000 for those investing in NPS u/s 80CCD(1B). Therefore, now the total deduction that can be claimed is Rs 2 lakhs.
  • Employer contributing to the NPS on behalf of an employee will get deduction from his income (i.e. employer”s income) an amount equivalent to the amount contributed or 10% of basic salary + DA of the employee, whichever is less.
  • Employer”s contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s 80C of the Income tax Act, 1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1.5 lakhs u/s 80C of the Income tax Act, 1961.
  • The tax treatment for contribution made in Tier I account is Exempted-Exempted-Taxed (EET).
  • The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity is not taxable. Only the amount withdrawn by the subscriber after the age of 60 is taxable.

Charges

All the charges associated to Tier I account including Annual PRA Maintenance charge are paid by the employer. In case of Tier II account, activation charge and transaction charges are paid by the subscriber.

The POP charges and the CRA charges are given in the table below:

Intermediary	Heads	Charges*	Method of Deduction
CRA	PRA Opening charges	Rs. 50	Through cancellation of units at the end of each quarter.
Annual PRA Maintenance cost per account	Rs. 190
Charge per transaction	Rs. 4
POP (Maximum permissible charges for each subscriber)	Initial subscriber registration	Rs. 100	To be collected upfront
Initial contribution upload	0.25% of the initial contribution amount from subscriber subject to a minimum of Rs.20 and a maximum of Rs.25,000/-
Any subsequent transaction involving contribution upload	0.25% of the amount subscribed by the NPS subscriber, subject to minimum of Rs.20/- and a maximum of Rs.25000/-
Any other transaction not involving a contribution from subscriber	Rs. 20

              ^* Service tax and other levies, as applicable, will be levied as per the existing tax laws

Withdrawal Norms

• If the subscriber leaves the scheme before retirement (age 60), s/he has to invest 80% of their accumulated savings in a life annuity from a life insurance company approved by IRDA. The remaining 20% is eligible for withdrawal as a lump sum.
• On retirement, at age 60, subscribers are required to invest at least 40% of their pension fund in an annuity and the remaining 60% can be redeemed as a lump sum. In the case of government employees, the annuity provides for pension for the lifetime of the employee and his dependent parents and spouse at the time of retirement.
• A subscriber can remain in the scheme after attaining the age of 60 for the purpose of receiving interest on their account, but cannot make any further contributions to the account. If however, they do not exit the scheme by the age of 70, the account is closed and the benefits are transferred to the subscriber as a lump sum.
• The selection of annuity scheme can be deferred by three years after attaining age 60 while the lump sum withdrawal can be deferred upto the age of 70 years.
• If a subscriber dies, the nominee has the option to receive the account total as a lump sum.However, if the nominee wishes to continue with the NPS, he/she shall have to subscribe to NPS individually after following due KYC procedure.

NPS seems to be a good retirement solution. We are positive about NPS. Also, if the appeal for Exempt-Exempt-Exempt gets sanctioned, NPS will not be taxable at withdrawal.

So Open your accounts soon and avail the benefits especially the year on year extra tax savings. Good Luck!