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Abhipra : New Pension Scheme

National Pension Scheme

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National Pension Scheme (NPS) is a defined contribution based pension system launched by Government of India with effect from 1 January, 2004. Like most other developing countries, India does not have a universal social security system to protect the elderly against economic deprivation. As a first step towards instituting pension reforms, Government of India moved from a defined benefit pension to a defined contribution based pension system. Apart from offering wide gamut of investment options to employees, this scheme would help government of India to reduce its pension liabilities. Unlike existing pension fund of Government of India that offered assured benefits, NPS has defined contribution and individuals can decide where to invest their money. The scheme is structured into two tiers:

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Regulator

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Pension Fund Regulatory and Development Authority (PFRDA) is the prudential regulator for the NPS. PFRDA was established by the Government of India on 23 August 2003 to promote old age income security by establishing, developing and regulating pension funds. PFRDA has set up a Trust under the Indian Trusts Act, 1882 to oversee the functions of the PFMs. The NPS Trust is composed of members representing diverse fields and brings wide range of talent to the regulatory framework.

 

Coverage & Eligibility

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NPS will be available to all citizens of India on voluntary basis and mandatory for employees of central government (except armed forces) appointed on or after 1 January 2004. All Indian citizens between the age of 18 - 60 can join the NPS.

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Operational Structure

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NPS is designed to leverage existing network of bank branches and post offices to collect contributions and ensure that there is seamless transfer of accumulations in case of change of employment and/or location of the subscriber. It offers a basket of investment choices and Fund managers.
The key terms to understand the working of NPS are as follows:

 

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Contribution Guidelines

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The following contribution guidelines have been set by the PFRDA:

  • Minimum amount per contribution: Rs. 500 per month
  • Minimum number of contributions: 4 in an year (at least 1 in each quarter)
  • Minimum annual contribution: Rs 6,000 in each subscriber account.

If the subscriber is unable to contribute the minimum annual contribution, a default penalty of Rs.100 per year of default would be levied and the account would become dormant. In order to re-activate the account, subscriber will have to pay the minimum contributions, along with penalty due. A dormant account will be closed when the account value falls to zero.

   
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NPS

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