National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
- Under the NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of government bonds, bills, corporate debentures and shares. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
- At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empanelled life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
- Flexible- NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow. Individuals can switch over from one investment option to another or from one fund manager to another subject, of course, to certain regulatory restrictions. The returns being totally market-related.
- Simple – Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is structured into two tiers:
- Tier-I account:This is the non-withdraw-able permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.
- Tier-II account: This is a voluntary withdraw-able account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.
The NPS is a sophisticated innovation that is based on the world’s best practices in the pension sector.
- NPS is based on Personal retirement accounts (PRAs) created for individual members. NPS accumulates savings into subscriber’s PRA while he is working and use the accumulations at retirement to procure a pension for the rest of his life.
- NPS architecture consists of NPS Trust which is entrusted with safeguarding subscribers interests, a Central Recordkeeping Agency (CRA) which maintains the data and records, Point of Presence (POP) and aggregators as collection and distribution arms, competing pension fund managers for generating and maximizing returns on investments of subscribers, custodian to take care of the assets purchased by the Fund managers and Trustee bank to manage the banking operations.
- NPS has an unbundled Architecture, with inbuilt checks and balances, where each function is performed by a different entity which is renowned in its area, to achieve maximum operational efficiency and at a low cost.
- NSDL is acting as Central Record Keeping agency (CRA) which is associated with various national level projects for recordkeeping functions.
- Renowned Financial Institutions covering Public/Private Sector Banks, NBFC, etc., acting as POPs and Aggregators.
- Funds are managed by professional Fund Managers from Public & Private sector with proven track record and as per the PFRDA approved investment guidelines. At present there are 8 pension fund managers managing the pension wealth of subscribers. They are :
- HDFC Pension Management Co. Ltd
- ICICI Prudential Pension Fund Management Co. Ltd.
- Kotak Mahindra Pension Fund Ltd.
- LIC PensionFund Ltd
- Reliance Capital Pension Fund Ltd
- SBI Pension Funds Pvt. Ltd
- UTI Retirement Solutions Ltd
- Pension Fund (PF) to be incorporated by Birla Sunlife Insurance Co. Ltd