Importance of New Pension Scheme (NPS)

In India, less than 11% of the population is covered under the social security schemes of the Govt. Finally, Indians have a new investment option for 'Retirement Planning'. After a long wait of almost 5 years, the 'New Pension Scheme' - NPS has been notified by Govt. of India, and is open to the general public w.e.f. 1st May 2009 (Labour Day). It has opened new avenues of 'Financial Planning' for the 'Aam Aadmi'.

The NPS will be regulated by Pension Fund Regulatory and Development Authority PFRDA), which was established by the Government of India on 23rd August 2003 to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds. There is a move to bring all pension schemes, including those promoted by private insurers under the ambit of PFRDA at a later stage.

Salient features of NPS are:

• It is a system of fund management for retirement like the EPF, GPF and PPF.
• Anyone in the age group of 18 to 55 years irrespective of the sector in which he /she works .(govt as well as private sector) can apply for the new pension scheme.
• One can approach any one of 17 banks/fund houses like SBI, ICICI, IDBI, Axis, LIC, and many more through the 285 point of presence (POPs) to register and get a Permanent Retirement Account Number (PRAN).
• The minimum annual contribution to the new pension scheme has been fixed at Rs 6,000 in minimum 4 yearly installments. You can make any number of installations and any amount in the new pension scheme.
• The funds in the new pension scheme will be invested in Equity, debt instruments and government bonds.
• The new pension scheme does not guarantee a predefined fixed return. Returns depend upon the growth of the funds over a period of time.
• Three risk profiles have been envisaged under the scheme: 1. Up to 35 years (equity-50%, govt. bonds-30%, debt instruments-20%, 2. 35-60 years (equity portion is reduced, higher proportion invested in bonds/govt. securities), 3. Post 60 years (only 10% in equities and about 80% in govt. bonds).
• Regular pension is payable from age 60 onwards. Any exit from the new pension scheme before attaining the age of 60 years, you will be entitled to get 20% of the funds you have invested and the rest has to be invested in annuities with the insurance companies.