Thursday, February 23, 2017

National Pension System


Pension Fund Regulatory and Development Authority is established under the PFRDA Act which was passed on 19.09.2013 in the parliament and notified on 01.02.2014. PFRDA is regulating the National Pension scheme.


Contributory Pension Scheme notified by the central government on 22.12.2003 was renamed as National Pension System w.e.f 01.01.2004 for all the central government employees except the employees of the armed forces. Subsequently the same scheme was extended to all the citizens of india w.e.f 01.05.2009. This scheme abolishes the old pension system being managed by the Provident fund under the accountant general of india. After passing of the PFRDA Act, NPS got the legal status with retrospective effect from 01.04.2004.


Contibutory Pension scheme is being continued by the state government to have control over the subscription of the state government employees. The money collected under the scheme is supposed to be transferred to the NPS account opened on behalf of the employee as prescribed by the PFRDA norms.

Central Record Keeping Agency:

  • NSDL(National Securities Depository Ltd) is supposed to be the Central Record Keeping Agency, which will maintain the accounts of the NPS and give IT back end support.
  • M/s Karvy Computershare Private Limited is recently been authorised to act as a Central Record Keeping Agency.

Pension Fund Managers:

Pension Fund Managers were appointed for managing funds collected under the scheme. They are authorized to invest the money in the capital market as per the option selected by the contributors.
At present there are 7 pension fund managers approved by the PFRDA, one of which can be selected by the contributor of his choice.
1.    LIC Pension Plan
2.    SBI Pension Plan
3.      UTI Retirement Solutions
4.    ICICI Prudential Pension
5.    IDFC Pension
6.    Kotak Mahindra Pension
7.      Reliance Capital Pension

The first three fund managers are approved to manage the government employees contribution. The non-government employees or individual citizen can select any of the seven fund managers of his choice.

Investment Options:

The investment can be done on two basis
1.      Auto Choice (Aggressive, Moderate, Conservative)
2.      Active Choice

·      Auto choice option will be as per the age of the subscriber. The percentage of allocation will be between Equity (E), Corporate Debt (C), Government Securities (G) will change as per the age and the option exercised.
·         Active choice can given by the subscriber, but no case the equity allocation can be more than 50%.

At the age of retirement(60years), a certain percentage (40%) will be used to purchase a annuity scheme from which regular monthly pension amount will be given till the specified years as choosen by the individual. The remaining corpus can be withdrawn in bulk.

Tax Status:

The investment can be exempted from the tax as per the Income Tax Act 1961:

80 CCD(1a): Contribution to the NPS Scheme or equivalent scheme or 10% of the Basic Salary+DA whichever is less subject to the limit of Section 80 C

80CCD(1b): Voluntary Contribution to the NPS (Tier I) Account which is over and above section 80 C limit subject to the maximum of Rs.50000.

80CCD (2): The equivalent contribution by the employer into the salaried employees account subject to the 10% of the salary.


Any individual can open a NPS account electronically without any paperwork using Aadhar based authentication. The procedure is very simple which is explained in the picture.


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