Did you know | There is a new NPS option for companies

Deepti Bhaskaran  :mint Money : Thu, Oct 25 2012. 07 44 PM IST


The new scheme will be available from next month

There is a new scheme called the corporate central government scheme under the National Pension System (NPS). This scheme is meant for companies who want to invest, for their employees, through pension fund managers in pension funds tailored for government employees. The new scheme will be available from next month.

How companies invest in NPS

Presently, companies can invest in NPS either by choosing the private sector NPS or the government NPS. Both these schemes have the same architecture and design but differ in investments and pension fund managers. Private NPS currently has six fund managers and three funds called asset class E that invests in equity, asset class C that invests mainly in corporate bonds, and asset class G that invests in government bonds. As per the investment norm, an investor can’t put more than 50% of the money in equities.

But in case of the government NPS, which is handled by three fund managers and the corpus is divided among them, the equity investment is restricted to 15%. Do note that while investment in equity in case of private NPS is only through index funds, government scheme can invest in equity directly or through mutual funds.

The new option

But now, the Pension Fund Regulatory and Development Authority has allowed the private NPS fund managers to increase fund management charge (FMC) up to 0.25%.

In order to allow government pension funds to charge the same FMC to companies, the regulator has proposed a new scheme called corporate central government scheme. The investing company will have to choose the fund manager and the corpus will no longer get divided among the three fund managers namely LIC Pension Fund Ltd, SBI Pension Funds Ltd and UTI Retirement Solutions Ltd.

Tax benefit

Around 10% of your basic salary plus dearness allowance, that is contributed to NPS, is eligible for a tax deduction under section 80CCD of up to Rs.1 lakh. However, if your employer also chooses to contribute to your account then contribution equal to 10% of your basic salary plus dearness allowance is deductible in your hands under section 80CCE.

New Pension Scheme: Choose plan to suit risk profile

Source:24 OCT, 2010, 06.26AM IST, ASHISH GUPTA,ET BUREAU 

Under the New Pension Scheme (NPS), investors save money which is put into the capital market. The sum which you will get after retirement will be dependent on the performance of the capital market. You can make monthly or weekly contributions to the NPS. But for every contribution, your transaction cost will increase. 

Prior to NPS, there was the Defined Benefit Plan -one would get certain pension fixed for life. The postretirement proceeds were fixed and if there is a shortfall in this corpus, the government would make good. 

NPS is a Defined Contribution Plan where the returns will not be fixed. 

You will only get what you have contributed and returns that the fund manager generates on it. All new entrants to the central government services (other than armed forces) after January 1, 2004, will compulsorily join this scheme. 

All citizens, including NRIs, aged 18 to 60 can voluntary join the scheme. The exit age is 60 years. 

A minimum contribution of Rs 6,000 is compulsory per year. The minimum amount per contribution is Rs 500 and a minimum of four contributions in a year for each subscriber account is required. 

Under the NPS, each subscriber is allotted a unique 16-digit Permanent Retirement Account Number (PRAN). This number is portable. The records of transactions are maintained by the Central Record Keeping Agency (CRKA). The subscriber has the option to invest with seven pension fund managers (PFMs). He also has the option to choose any one or more PFMs to manage his contribution. These PFMs will have three kind of funds categorised as 'E' for equity funds, 'G' for funds investing in government securities and 'C' for fixed income securities other than government securities. 

There are two types of accounts: 

Tier I account where you cannot withdraw 

The Tier I account is the basic NPS account that is non-withdrawable till retirement or death of the subscriber. In this account, the total corpus at retirement age is split, where a minimum of 40 percent of the final corpus has to be compulsorily used to buy an annuity while the subscriber is free to withdraw the remaining 60 percent as a lump sum or in instalments. 

Tier II account where you can withdraw 

The Tier II account is available to only to those who are existing subscribers of the Tier I account. The money contributed into this account can be freely withdrawn as and when the subscriber wishes to except for a minimum balance that needs to be maintained at the end of each financial year.