NPS - NATIONAL PENSION SYSTEM

Background - Introduction To NPS

 NPS – National Pension System, launched by Government Of India in Feb 2004
as a sustainable solution to provide retirement income for Central
government employees
 In May 2009 NPS was made available to all Indian citizens
 In Dec 2011 Corporate Sector Model was introduced
 In 2013, Parliament passes the PFRDA Bill. Interim PFRDA gets fully regulatory
powers.
 Objective : Assured monthly income to ensure dignified life in old age

Age
Group 0 to 18 18 to 75 70 Onwards
NPS provides a platform
for saving to create
corpus, to enable
subscriber for purchasing
Annuity post retirement
Key Stakeholders

Autonomous body set up

by Government of India Role played by NSDL
to develop & regulate and K-Fintech
pension market
CRA - Central Record Keeping Agency
Pension Fund Regulatory & Development Authority

Responsible for custody

of securities
First point of contact for
corporate, subscribers Role played by Stock
& NPS stakeholders Holding Corporation of
Custodian India (SHCIL)
POP - Point of Presence

Responsible for
Responsible for delivering monthly
investment and pension to subscriber
management of funds
PFM - Pension Fund Manager ASP - Annuity Service Provider

Role played by Axis

Supervision of PFMs Bank, Manages banking
functions across various
NPS Trust entities of NPS
Trustee Bank
How NPS Works?

Employee starts investing in NPS On Exit, a portion of Corpus comes to Employee in

directly / through Employer lump sum and balance to be invested in Annuity

Accumulation Phase

Withdrawal Phase
In case of death of
Employee, Nominee / Legal
Heir can claim the Corpus
Employee starts getting pension depending on
the Annuity scheme selection

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Key Highlights
Features Particulars

Eligibility Open to all Citizens of India (except armed forces)

 Account can be operated from anywhere in the country

Subscriber can choose:
 Contribution amount at Employee Level
Flexible  Contribution by Employer is upto 10% of Basic
 Investment option

Cost Low handling and administrative charges

Transparent Fee and cost structure are as per PFRDA guidelines
 Simple process for opening pension account
Simple  Online tracking of transactions and contributions.

 Employee’s as well as Employer’s contribution, eligible for tax

Tax Benefits
exemption as per the Income Tax Act, 1961
Eligibility
 Citizen of India aged between 18 to 75 years
 Should comply with the Know Your Customer (KYC)
Who can join?
norms

 Persons of Indian Origin (PIO)

 Pre-existing account holders - Pre-existing account
Who cannot holders can transfer their NPS account to NPS by
join? submitting change request form.

Employees  NPS contribution is NOT statutory in nature like PF

whose salary  Enrollment is possible, however employer
processing is contribution is NOT possible as salary is not paid in
not done in India. Ex. Employees whose salary processing in any
India other currency apart from INR
 Employee can contribute in an individual capacity
Types of NPS Accounts & Operating Guidelines
Tier I NPS account Tier II NPS account

 Also known as Pension Account  Also known as Investment Account

 Its mandatory to open in order to join NPS  Option for Subscriber. It can be opened
later as well
 Withdrawal from this account is conditional
 Withdrawal from this account is permitted
any time

Operating guidelines of Tier 1 and Tier 2

NPS account

Particulars Tier I Account Tier II Account

Initial Contribution required to open Account Rs.0 Rs. 1,000

Minimum amount of subsequent Contribution Rs.0 Rs. 250

Minimum Annual Contribution required Rs. 1,000 Nil

 NPS account is frozen if employee does not deposit minimum annual contribution required.
 For Corporate NPS, initial Contribution is not required.

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Transferability
From Ex-
Employer to  Existing NPS Tier 1 account can be transferred
New Employer
 Submit employment change request form to POP, KYC
(If NPS is
implemented documents and authorization from HR (new employer)
by new
 Prescribed charges needs to be paid by employee
employer)

Upon exit from  NPS a/c would be transferred from Corporate NPS to Individual
(If NPS is NOT NPS a/c
implemented
by new  You can continue to contribute as an individual under Tier 1
Employer)  Prescribed charges needs to be borne by individual

 Tier II accumulation can be switched to Tier I account but not

Account type vice versa
Investment Option
Asset Class Details

Charges
E - Equity Market • Investment in equity market, investment in 194 BSE & NSE
derivative trading stocks.
• Each one of the script should have min Market Cap of 5,000
Crs.
• Investment
Employer is able to negotiate with the POP ascapped
to to 75% of total contribution.
the -POP
C chargesBonds
Corporate as their will be• bulk uploads in Fixed Income instruments other than
Investments
and transactions Government Securities
G - Government Bonds • Investments in Government Securities
A - Alternate Investment •Commercial / Residential Mortgage based securities
Fund •Investment Capped at 5% of total Contribution

Asset Class Choice Details

• Allows subscriber to choose investment
percentage under each asset class.
Active choice
• Investment under asset class E is always
restricted to 75%

• Investment across 3 funds (E, C and G) is done in

Auto choice
a life cycle mode as per age of the Employee.

• Asset choice can be changed twice in a year

• Employee has to chose his investment choice
Auto Choice – Investment Pattern
Aggressive Life Cycle (LC75) Moderate Life Cycle (LC50) Conservative Life Cycle (LC25)

Age (Yrs) E% C% G% E% C% G% E% C% G%
< = 35 75 10 15 50 30 20 25 45 30
36 71 11 18 48 29 23 24 43 33
37 67 12 21 46 28 26 23 41 36
38 63 13 24 44 27 29 22 39 39
39 59 14 27 42 26 32 21 37 42
40 55 15 30 40 25 35 20 35 45
41 51 16 33 38 24 38 19 33 48
42 47 17 36 36 23 41 18 31 51
43 43 18 39 34 22 44 17 29 54
44 39 19 42 32 21 47 16 27 57
45 35 20 45 30 20 50 15 25 60
46 32 20 48 28 19 53 14 23 63
47 29 20 51 26 18 56 13 21 66
48 26 20 54 24 17 59 12 19 69
49 23 20 57 22 16 62 11 17 72
50 20 20 60 20 15 65 10 15 75
51 19 18 63 18 14 68 9 13 78
52 18 16 66 16 13 71 8 11 81
53 17 14 69 14 12 74 7 9 84
54 16 12 72 12 11 77 6 7 87
> = 55 15 10 75 10 10 80 5 5 90

Re-balancing of portfolio under Auto choice is done on next date of birth of the employee. It’s
a system driven activity

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NPS - Charge structure
Frequency of
Intermediary Charge Head Charge Mode of deduction
deduction

Subscriber Registration Rs.200 One time

POP From the contribution
Contribution Processing* 0.25%
(HDFC Pension) On each transaction amount
Non – Financial Transaction Processing Rs. 20

PRAN Generation Rs.39.60 One time

CRA
Annual Maintenance Rs.57.63 Per annum
(K-Fintech)
Financial Transaction Processing Rs.3.36 On each transaction

Custodian Asset Servicing 0.0032% Through NAV

Per annum deductions
NPS Trust Trust Management 0.001%

*Minimum Rs.20 and maximum Rs.25.000 per transaction

Pension Fund Manager AUM Slab (In Cr) PFM Charge (% of AUM)
Fees: From 1st Apr’21, Fund Up to Rs 10,000 0.09%
Management charge shall
be levied basis below AUM Rs 10,001 - Rs 50,000 0.06%
slab of the Fund Manager. Rs 50,001 - 1,50,000 0.05%
Rs 1,50,000 and above 0.03%

•Charges are exclusive of GST

•All charges will be borne by respective employees
Tax treatment

Type of
Contribution

Contribution made Contribution made

Employer by Employee by Employee
Contribution directly – Part 1 directly – Part 2

Opportunity to get Eligible for 10% of Up to Rs.50,000

up to 10% of basic Basic salary deductible under
as tax-free salary under section 80 section 80CCD
u/s 80 CCD (2) (to CCD (1A) within (1B)
an extent of 7.5 Rs.150,000 limit
Lakhs) under section 80 This benefit is
CCE. over and above
This benefit is over
the limit of
and above the limit
80CCE.
of 80CCE and
80CCD (1B)
Partial Withdrawal, Exit & Death Benefit

Partial Withdrawal Pre-mature exit Exit on Maturity Death Benefit

• Allowed after 3 • Allowed after 5 • Exit on retirement • Entire Corpus can

years of account years of account age defined by the be claimed by
opening opening Corporate is nominee / legal heir
treated as exit on
• Up to 25% of • Up to 20% of maturity
Contributed amount Corpus is allowed
can be withdrawn for withdrawal • Up to 60% of
Corpus is allowed
• In the entire life • Balance amount for withdrawal
span, 3 withdrawals gets invested in
are permitted annuity • Minimum 40% of
Corpus to be
• Contribution invested in annuity
deposited for
availing tax benefit
u/s 80CCD (2) shall
not be available for
partial withdrawal

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Tax Treatment on Partial Withdrawal, Exit & Death
Benefit

Partial Withdrawal Pre Mature Exit Exit on Maturity Death Benefit

Amount withdrawn is Amount withdrawn is Amount withdrawn is Amount received by

tax free tax free tax free Nominee / Legal heir
is tax exempt

Tax treatment on Annuity

Amount invested in Annuity is tax exempt
Pension received is treated as Income and will be taxed appropriately, if falling into any tax
bracket

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Investment in Annuity
 Choice of Annuity Service Provider  Choice of Annuity Scheme – Popular
Options
1. HDFC Standard Life Insurance
1. Pension payable for life at a uniform
2. ICICI Prudential Life Insurance
rate to the Subscriber only
3. Bajaj Allianz Life Insurance
2. Pension for life with 100% return of
4. Star Union Dai – Ichi Life Insurance purchase price on death of the
Subscriber
5. Kotak Mahindra Life Insurance
3. Joint Life pension with 100% of
6. Canara HSBC Oriental Bank of return of corpus
Commerce Life Insurance
7. India First Life Insurance
8. Edelweiss Tokio Life Insurance
9. Bajaj Allianz Life Insurance
10. Life Insurance of Corporation (LIC)

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Budget Impact on NPS – Where only EPF and NPS
are offered
Thank you