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Concept of National Pension System

National Pension Scheme

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National Pension Scheme

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Page 1: National Pension Scheme

Concept ofNational Pension System

Page 2: National Pension Scheme

Defined Contribution based Pension System initiated by Government of India

Individual who joins NPS is called Subscriber to NPS

Subscriber can join NPS through any of the registered Point of Presence (POP) / Service Providers (POP – SP)

A unique Permanent Retirement Account Number (PRAN) is allotted to each subscriber by Government of India

PRAN gives access to two types of accounts to the subscriber – Tier – 1 and Tier 2 NPS account

Contributions to NPS accounts gets invested through PFRDA appointed Pension Fund Manager (PFM)

On maturity, the Pension Wealth can be used by the subscriber to purchase an Annuity by Annuity Service Providers

Concept of National Pension System

Page 3: National Pension Scheme

Unique features of NPS

Voluntary investment option

Unique PRAN, Portable across jobs and geographies

Online accessibility of funds and investment details

Choice of Funds and Fund Managers

Option of “Life Cycle Fund” as scheme preference

Option to switch amongst the Funds, Fund Managers and Scheme Preference

Market Based Returns

Safeguarding the investment through “Auto Rebalancing of Portfolio” technique

Unmatched Tax Benefits

Page 4: National Pension Scheme

NPS Product Details

Page 5: National Pension Scheme

*Unit holding as on 31st March of next year should be Rs.2000

Two Tier Structure

Particulars Tier I Tier II

Option of Selection of the Account Mandatory Optional

Minimum Contribution at the time of A/c Opening Rs.500 Rs.1,000

Minimum Amount for Subsequent Contribution Rs.500 Rs.250

Minimum Contribution required per year Rs.6,000 Rs.2,000*

Minimum Number of Contribution required Per Year 1 1

Withdrawal option available No Yes

Page 6: National Pension Scheme

NPS gives investors an option to invest according to their own choice and risk appetite among the asset classes of equity, corporate bonds and government securities

This is known as “Active Choice” scheme preference

Subscriber gets the option to change the Asset Allocation Pattern once in a financial year

Asset Class Limit of Exposure

Equity (E) 50%

Corporate Bonds (C) 100%

Government Securities (G) 100%

Fund options (Asset Classes)

Page 7: National Pension Scheme

If the individuals are unsure about their investment strategy, they can go for the default option and the funds will be managed by the fund managers on the pattern of a lifecycle fund (known as Auto Choice)

Subscriber can shift from life cycle fund (Auto Choice) to Active Choice and vice – versa once in a financial year

Age (in Years)Exposure in

Asset Class EExposure in

Asset Class CExposure in

Asset Class G

Upto 35 50% 30% 20%

36 48% 29% 23%

37 46% 28% 26%

- - - -

55 and Above 10% 10% 80%

Life Cycle Fund option

Page 8: National Pension Scheme

Auto Rebalancing of Portfolio

In order to safeguard the investment from excessive exposure to scheme E, rebalancing of assets takes place in the following manners

If the scheme preference is Active Choice

• Rebalancing is carried out once in a year on the date of birth of the subscriber

• The excess amount (over 50%) is shifted towards scheme C and scheme G in the proportion already chosen by the subscriber

If the scheme preference is Auto Choice

• Dynamic (System driven) rebalancing across schemes as per the age wise allocation ratio is carried out on the date of birth of the subscriber

Page 9: National Pension Scheme

Subscriber can select any of the below mentioned Pension Fund Managers to manage his / her corpus in Tier I and Tier II accounts

ICICI Prudential Pension Funds Management Company Limited

Kotak Mahindra Pension Fund Limited

Reliance Capital Pension Fund Limited

SBI Pension Funds Private Limited

UTI Retirement Solutions Limited

Subscriber can change the Fund Manager once in a financial year

Pension Fund Manager

Page 10: National Pension Scheme

On death of the subscriber, nominee / legal heir to the subscriber can claim 100% of the Corpus

Once the withdrawal option is selected, PRAN will be closed and subscriber is not allowed to join NPS again

Vesting Options for Tier I account

Particulars Vesting before attaining the age 60

Vesting after attaining the age 60

Purchase of Annuity Minimum 80% of Pension Wealth to be used to buy Annuity

Minimum 40% of Pension Wealth to be used to buy Annuity

Amount allowed for withdrawal

Balance Pension Wealth is allowed for withdrawal

Balance Pension Wealth is allowed for withdrawal

Mode of withdrawal of lump sum amount

In Lump sum Either in Lump sum or Phased withdrawal option where

minimum 10% of the Pension Wealth should be withdrawn each year up to the age 70

Annuity Start Age Immediate after vesting is exercised Immediate after vesting is exercised

Page 11: National Pension Scheme

*Subject to min charge of Rs.20 and max charge of Rs.25K per PRAN per Transaction / Contribution

Schedule of Charges (net of Service Tax)

Intermediary Charge Head Service Charge

POP

Subscriber Registration Charge (One Time) Rs.100

Contribution Charge (Each Contribution) 0.25%*

Non – Financial Transaction Charge (Each Transaction) Rs.20

CRA

PRA Opening Charge (One Time) Rs.50

PRA Maintenance Charge (Per Annum) Rs.225

Transaction Charge (Each Transaction) Rs.5

PFM Investment Management Charge (Per Annum) 0.25%

Custodian Asset Servicing Charge (Per Annum) 0.0075%

Page 12: National Pension Scheme

Illustration – Yield Net of Charges

Age of the Subscriber (Yrs) 40

Rate of Return 10%

Maturity Age (Yrs) 60

Annual Contribution*

Pension Wealth

Yield Net of Charges

Cost of Operation

60,000 3,608,724 9.62% 0.38%

75,000 4,515,087 9.63% 0.37%

100,000 6,025,693 9.64% 0.36%

200,000 12,068,115 9.65% 0.35%

*Mode of Contribution: Annual

Page 13: National Pension Scheme

Fund Performance (as on 31st Dec’ 2012)

PFM3 Months (%) 6 Months (%) 1 Year (%) Since Inception*

E C G E C G E C G E C G

UTI 3.36 2.63 3.52 11.20 7.30 6.61 26.15 13.16 12.87 9.34 9.20 7.74

ICICI 3.47 2.63 3.63 12.59 7.79 6.61 29.79 14.37 13.05 10.23 11.54 7.89

RELIANCE 3.56 2.96 3.52 11.88 8.19 6.67 27.19 13.96 13.80 8.80 8.66 7.30

KOTAK 3.72 2.76 3.37 12.17 7.56 6.46 29.30 14.74 13.13 8.09 11.74 7.98

SBI 3.41 2.43 3.61 11.77 7.79 6.71 28.49 15.53 13.42 5.33 12.20 10.46

Industry Av 3.50 2.68 3.53 11.92 7.73 6.61 28.18 14.35 13.25 8.36 10.67 8.28

Sensex 3.20     11.65     25.70    

Nifty 3.26     11.87     27.70    

*Since May’2009

Returns for less than one year period is absolute and not annualized

Page 14: National Pension Scheme

Tax Benefits &

Treatment

Page 15: National Pension Scheme

For Employee

Employee’s contribution to Tier – 1 NPS account is eligible for tax benefit u/s 80CCD (1) of Income Tax Act, 1961, up to 10% of the salary (Basic and Dearness Allowance)

Employer’s contribution to Tier – 1 NPS account of the employees is eligible for additional tax benefit u/s 80CCD (2) of Income Tax Act, 1961 up to 10% of the salary (Basic and Dearness Allowance)

The tax benefits u/s 80CCD (2) can be enjoyed by the employee over and above the tax benefits on the contributions towards Employee Provident Fund, Superannuation and Gratuity schemes

Tax Benefits on Investment

Page 16: National Pension Scheme

Tax Treatment on Withdrawal

Tier – 1 NPS Account

Currently NPS has Exempt – Exempt – Taxation (EET) status, however as per the proposed Direct Tax Code (DTC), NPS will have Exempt – Exempt – Exempt (EEE) status

Taxation under EET status

• Amount used to purchase annuity is exempt

• Amount withdrawn in lump sum is taxable subject to exemption u/s 10 (10 A)

Tier – 2 NPS Account

Withdrawal from Tier – 2 NPS Account is likely to be subject to Capital Gain Tax

Page 17: National Pension Scheme

Grievance Redressal Mechanism

Page 18: National Pension Scheme

Grievance Redressal Mechanism

CRA Call Center: subscriber can call on 1-800-222080 and post authentication using T-PIN grievance is registered. A Token No is allotted by Customer Care Executive

Web based interface: subscriber can log in to https://cra-nsdl.com using the I-PIN and register the grievance. A Token No is displayed on screen for future reference

Physical forms: Subscriber can submit the grievance in a prescribed format to POP / POP-SP who will forward it to CRA Central Grievance Management System (CGMS). The Token No will be e-mailed to the registered ID of the subscriber for future reference

Page 19: National Pension Scheme

How to Join NPS - Corporate and Employee

Page 20: National Pension Scheme

Employee needs to submit the following documents to Kotak Bank branch / representative in order to get registered for NPS

Duly filled Composite Registration Form (CS – S1)

KYC Documents (Address and Identity proof)

Initial Contribution Amount

Rs. 500 if opted for Tier – 1 account

Rs.1500 if opted for both Tier – 1 and Tier – 2 accounts

After the PRAN is generated, NSDL sends ‘Welcome Kit’ to employee / corporate address containing

the PRAN Card,

Master Sheet (the complete information provided by the employee in the form)

I – Pin and T – Pin

Employee joining NPS

Page 21: National Pension Scheme

Thank You