New Pension Scheme (Nps)

8/14/2019 New Pension Scheme (Nps)

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NEW PENSION SCHEME (NPS)

New Pension Scheme (NPS) is a defined contribution based pension systemlaunched by Government of India with effect from 1 January, 2004. Like mostother developing countries, India does not have a universal social security system

to protect the elderly against economic deprivation. As a first step towardsinstituting pension reforms, Government of India moved from a defined benefit

pension to a defined contribution based pension system. Apart from offering widegamut of investment options to employees, this scheme would help government of India to reduce its pension liabilities. Unlike existing pension fund of Governmentof India that offered assured benefits, NPS has defined contribution and individualscan decide where to invest their money. The scheme is structured into two tiers:

• Tier-I account: This NPS account doesn’t allow prematurewithdrawal and is available from 1 May, 2009

• Tier-II account: The tier-II NPS account permits withdrawal,however is likely to be functional by about 2009 end. Thenotification from the regulator Pension Fund Regulatory andDevelopment Authority (PFRDA) is expected shortly.

Since 1 April, 2008, the pension contributions of Central Government employeescovered by the New Pension System (NPS) are being invested by professionalPension Fund Managers in line with investment guidelines of Governmentapplicable to non-Government Provident Funds. A majority of State Governmentshave also shifted to the defined contribution based new pension system from

varying dates. 22 State/UT Governments have notified the NPS for their newemployees. Of these, 6 states have already signed agreements with theintermediaries of the NPS architecture appointed by PFRDA for carrying forwardthe implementation of the New Pension System. The other States are in the processof finalization of documentation.

From May 1, Indians have access to another investment avenue to plan for retirement in the New Pension Scheme (NPS).

The scheme has been in the pipeline for at least five years but it finally took shapein 2007-08. Although the government was pushing for the scheme after a law

providing statutory backing to the regulator was enacted, the Left parties, whichwere supporting the United Progressive Alliance government, did not allow the passage of the Bill.

Who can join the New Pension Scheme?Any Indian citizen between 18 and 55 years. At present, only tier-I of the scheme,involving a contribution to a non-withdrawal account, is open.



Subsequently tier-II accounts, which permit voluntary savings that can bewithdrawn at any point of time, can be opened. But to be eligible to open a tier-IIaccount, you need a tier-I account.

How much can I invest?There is no investment ceiling. But the minimum investment limit has been fixedat Rs 500 a month or Rs 6,000 annually. Subscribers are required to contribute atleast once a quarter but there is no ceiling on how many times you invest duringthe year.

What is the penalty for failure to make the minimumpayment?You will have to bear a penalty of Rs 100 per year of default and will need to payit with the minimum amount to reactivate the account. Also, dormant accounts will

be closed when the account value falls to zero.

What is the default option?The default option, called auto choice lifecycle fund, will see the investment mixchange according to the age of the subscriber. At the lowest entry age of 18 years,auto choice entails an investment of 50 per cent in E, 30 per cent in C and 20 per cent in G.

The ratios will remain unchanged till the subscriber turns 36, when the ratio of investment in E and C will decrease annually, while the proportion of G rises.

By the time the subscriber is 55 years, G will account for 80 per cent of the corpus,while the share of E and C will fall to 10 per cent each.

Who will decide the fund manager?At the moment, the Pension Fund Regulatory and Development Authority(PFRDA) has selected six fund managers -- State Bank of India, UTI, ICICIPrudential, Kotak Mahindra, IDFC and Reliance -- on the basis of a bidding andtechnical evaluation process.

You have to select one fund manager at the time of deciding your investmentoption; later, PFRDA may allow subscribers to choose more than one fundmanager.

Why the New Pension Scheme is best for you



After much delay and several near misses, we finally have a pension plan; a social security

scheme for 89 per cent of India's workforce that doesn't have a formal retirement solution.

The New Pension System (NPS), as it is now referred to, was fittingly launched on Labour Day,1 May. Though there are some concerns, such as its taxability, NPS is superbly designed to help

you save for your retirement. We feel it merits a place in your portfolio.The only question that remains is: just when should you sign up for NPS? Find out. . .

TOP UNIT-LINKED PENSION PLANS

Charges (%) Returns (%)2

Insurer Plan FMC 1styear1

2ndyear1

1-year

Kotak Life Kotak Retirement Income 1.60 13.12 2.80 64.20

SBI [ Get Quote ] Life Unit Plus II Pension 1.50 15.00 7.50 60.44

MetLife Met Advantage Plus 1.75 20.00 2.00 53.83

ICICI [ Get Quote ]Prudential

LifeTime Super Pension 1.50 14.00 9.00 51.77

HDFC [ Get Quote ]Standard

HDFC Unit-Linked Pension 0.80 25.00 25.00 44.36

Bajaj [ Images ] Allianz New UnitGain Easy PensionPlus

1.75 16.00 2.00 42.67

Only plans with a one-year track record of equity fund of up to 100% in equities have been considered

FMC: Fundmanagement charge

1Premium allocationcharge as % of annualpremium

2Coumpunded and annualized as on 31 Mar 2007, BSE Sensex returns over the periodwas 53.04%. Source OLM Research

Pension plan details

Age (Yrs)

Sumassured

(Rs)

Tenure(Yrs)

Annualpremium (Rs)

Maturity amt(@6%) (Rs)

Maturity amt(@10%) (Rs)

30 500,000 30 13,500 960,000 1,590,500

Actual rate of return (%) 5.10 7.80

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Annuity amt (Rs) 71,500 118,500

Let us take an individual aged 30 years who wants to buy a pension plan with a

sum assured of Rs 500,000 for a 30-year tenure. The premium to be paid for thesame is approximately Rs 13,500. In case of an eventuality, the beneficiary willstand to get the sum assured of Rs 500,000 plus the bonuses/additions, if any.

In case the individual survives the tenure, he will stand to benefit to the tune of thematurity amount as indicated in the table below. Assuming that he buys an annuityfor life, the annual amount he would get as pension would be approximately Rs71,500 (on Rs 960,000) or Rs 118,500 (on Rs 15,90,500). The option of receivingmonthly/quarterly/half-yearly pension is available with most life insurancecompanies.

However, the returns shown at 6% and 10% are not calculated on the premium paid. They are calculated after deducting expenses from the premium. The actualcompounded annual growth rate (CAGR) on the premium works out toapproximately 5.10% (for the 6% figure) or 7.80% (for the 10% figure).

Pension plans comparison table

ICICI [ GetQuote ]Prudential(ForeverLife)

Tata AIG(Nirvana)

Bajaj [Images ]Allianz(SwarnaVishranti)

LIC [ GetQuote ](JeevanSuraksha/JeevanDhara)

LIC (JeevanNidhi)

HDFC [ GetQuote ]PersonalPensionPlan

Product typeRegular pension plan

Regular pensionplan

Regular pensionplan

Regular pension plan

Regular pensionplan

Regular pensionplan

Minimumannualpremium (Rs) 6,000 - 5,000 2,500 3,000 2,400

Minimum cover (Rs) 50,000 50,000 50,000 50,000 50,000 -

Min-Max.tenure (Yrs) 5 yrs - 30 yrs - 5 yrs- 40 yrs 2 yrs - 35 yrs

5 yrs - 35yrs

10 yrs - 40yrs





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Min/Max Age atentry (Yrs) 20-60 18-55 18-65

18-65 (for JeevanDhara); 18-70(for JeevanSuraksha) 18-65 18-60

Min-Maxvesting age(Yrs) 50-70 50-65 45-70 50-79 40-75 50-70

Ridersavailable

Critical

illness rider,Accident anddisabilitybenefit rider

Term rider,

Criticalillness rider,Accidentrider

Term cover,Criticalillnesscover,Hospitalcashbenefit,Accident

benefit,Familyincomebenefit

Termassurancerider, Criticalillness rider

Accidentaldeath anddisabilitybenefitrider, Term

assurancerider,Criticalillness rider No

Life cover available Yes - Yes Yes Yes -

SBI PENSION SEHEMEWe at SBI Life understand the basic needs for pension plan and give you financialstrength to maintain your life style even after the retirement. SBI Life - Unit Plus IIPension plan makes sure that you have regular income after you retire and alsohelps you to maintain your standard of living.

This is a unit linked pension plan wherein the policyholder chooses an investment period from 5 to 52 years for a vesting age between 50 to 70 years. You can chooseto pay either single premium or pay regular premium for the entire policy term.Your contributions are invested into 5 fund options as per your choice.

Key Features:

Choice to invest & control four different funds as per your risk appetite.

Flexibility to choose between two options

. Pure Pension



. Pension cum Life Cover

No medical required for Pure Pension, automatic acceptance facility.

Flexibility to increase regular contribution.

Top up payments: any amount, anytime. Customize your plan by adding riders.

15 days free look period. Product type: This is a non participating UnitLinked Pension product. How does it work?

Choose your vesting age: Any age between 50 years - 70 years.

Choose premium frequency and premium amount

Choose plan option Option I Pure Pension Plan (For age group 18-65)Option II Pension Plan with life cover (For age group 18-60) I n case you haveopted for option II, your sum assured will be as mentioned below

For single premium mode

PremiumFrequency

Minimum frequency MaximumFrequency

Single 25,000(in multiples of 1000) No Limit

Yearly 24,000(in multiples of 100) No Limit

Half Yearly 12,000(in multiples of 100) No Limit

Quarterly 6,000(in multiples of 100) No Limit

Monthly 2,000(in multiples of 100) No Limit



Choose your investment funds: You can invest in 5 investment funds viz.Equity Pension Fund, Bond Pension Fund, Growth Pension Fund, BalancedPension Fund and Equity Optimiser Fund Benefits

For regular premium mode

Age atentry

Sum Assured

18-35 125 % of single premium subject to maximum SAof Rs. 10 lacs

36-45 125 % of single premium subject to maximum SAof Rs. 5lacs

46-60 125 % of single premium subject to maximum SAof Rs. 1.2 lacs

Age atentry

Sum Assured

18-35 5 or 10 times first annualised premium subject tomaximum SA of Rs. 10 Lacs

36-45 5 or 10 times first annualised premium subject tomaximum SA of Rs. 5 Lacs

46-60 1.2 lacs



Death Benefit: During accumulation phase

If you opt for option I : Pure Pension Plan Fund value will be paid in lumpsumto nominee. If you opt for option I : Pure Pension Plan with life cover The higher of fundvalue or sum assured will be paid in lumpsum to nominee.

Guaranteed additions by way of free allocation of units to increase your retirement kitty.

On Vesting: It’s your income; you decide how it works for you. You havechoice and flexibility.You can take upto one third of the fund value in lumpsum.tax-free as per current tax law. The tax free limit applicable for the commutated

value may change as per change in Income Tax rules During Annuity Phase:Balance amount has to be used to purchase annuity. The rate at which the amountat vesting date will be converted to an annuity is not guaranteed and will be basedon the prevailing immediate anniuty rates under the relevant annuity option at thevesting date. Currently SBI Life Insurance offers the following annuity options. Life annuity at constant rate. Annuity payable at constant rate throughout the life of Annuitant with facilityof receiving on death of Annuitant refund of purchase price less the sum total of annuity already paid till date of death.

Annuity payable at constant rate throughout the life of Annuitant with facilityof receiving on death of Annuitant 100% refund of purchase price. Annuity increasing at the simple rate of 1%, 2% or 3% per annum as the casemay be and payable during the life of the Annuitant. Annuity certain for 5/10/15 years as the case may be and for life thereafter. Last survivor annuity, whereby upon the death of Annuitant his / her spousewill receive a life annuity, which will be either 50% or 100% of the last annuityamount paid to the Annuitant, as selected. This annuity option will not be availableif the difference in the age of annuitant and spouse is more than 10 years. TaxBenefits Save tax u/s 80 CCC (1) of IT Act. What is the policy term?

Term = Vesting Age - Age at Entry

Minimum Years Maximum Years

5 Years 52 Years



Who can buy this product? If you are in the age group of 18 to 65 you can opt for SBI Life - Unit Plus II pension plan without life cover. For Unit Plus II pension

plan with life cover it should be between 18-60 years. Riders available

• SBI Life - Accidental Death and Total Permanent Disability Rider

• SBI Life - Critical Illness Rider You can invest in the following investment funds viz. Equity Pension Fund, Bond

Pension Fund, Growth Pension Fund, Balanced Pension Fund and Equity

Optimiser Fund

ASSIGNMENT ON INSURANCE

BY

ARUNA KUMAR SUTAR

INTERNATIONAL INSTITUTE

OFBUSINESS STUDIES



NEW PENSION SCHEME (NPS)

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New Pension Scheme (Nps)