mrunal new pension scheme nps_ features, benefits, system explained

8/20/2014 Mrunal New Pension Scheme NPS: Features, Benefits, System explained

http://mrunal.org/2013/04/economy-new-pension-scheme-swavalamban-nps-lite-pfrda-meaning-issues.html/print/ 1/9

[Economy] New Pension Scheme, Swavalamban, NPS-lite, PFRDA:meaning, issues

1. What is PFRDA?

2. Timeline:

3. Two accounts

4. NPS: Eligibility

5. What is PRAN?

Aadhar vs PRAN: Difference

Aadhar vs PRAN: Similarity

6. Players in the NPS game

7. NPS-lite

8. Swavalamban Scheme

9. Why NPS is not popular?

10. Why Swavalamban/NPS-lite is not popular?

11. NPS Corporate Sector Model

12. Mock Questions

What is PFRDA?

Pension Fund Regulatory and Development Authority (PFRDA)Union Government created this body via an executive order. (2003)To regulate and develop the pension sector in India.PFRDA is not a statutory body yet. (Because bill related to PFRDA is yet to bepassed).

Timeline:

2003 PFRDA established

2004 (compulsory) New Pension System (NPS), for the new recruits inGovernment of India (except the armed forces).

2009New Pension System (NPS) is opened up for any citizens in India who wantedto subscribe, even if they are not in Government service.

Just like we’ve NPS in India, In USA, they’ve a pension scheme for all citizens called“401 (K)”.

Two accounts

http://mrunal.org/



In New Pension scheme, there are two types of account

Tier-I Tier II

Compulsory for every subscriberOptional.You can open Tier II, only if you’veopened a Tier I account first.

You cannot Premature withdrawmoney before retirement age.

Can

NPS: Eligibility

Who can join? Who cannot join?

Any citizen of India (age 18-60) Below 18 and above 60

NRI can also join, if he has account in Indianbank.

1. A person declared insolvent.2. Person of unsound mind.

What is PRAN?

When you subscribe to New pension scheme, you’re given a unique accountnumber. Known as “Permanent Retirement Account Number (PRAN)”Recall that UID/Aadhar also gives you a unique number. But there aredifferences:

Aadhar vs PRAN: Difference

UID/Aadhar PRAN

Any resident of India Only Indian citizen

Any age Only 18-60

FreeYou’ve to make regularpayments.

This number doesn’t give any benefits byitself.It is upto an individual ministry / Departmentto use this number while giving somescholarship, subsidy, cash benefit etc.

PRAN number gives youpension.

Mentally-unsound and insolvent can get. Can’t.

VoluntaryCompulsory for new recruitsin Government service (minusarmed forces).

Aadhar vs PRAN: Similarity



1. For a private citizen, both are voluntary.2. NRI can apply for both.

Players in the NPS game

Subscriber Person who joins for New pension scheme..

PFRDAPension Fund Regulatory & Development Authority. Main boss forNPA.

CRA

Central record keeping agency.National Securities Depository Limited (NSDL) works as theCRA for NPA. It maintains record of every subscriber, based onhis PRAN number.(recall this NSDL also works as a “Depository” and holds yoursecurities (bonds,shares etc) in electronic (dematerialized) form.

Fundmanager

ICICI, UTI, SBI, Kotak etc are the fund managers for NPS.You candecide which fund manager you want to pick up.When you contributemoney to NPS, it goes to these fund managers. They invest your moneyin following*

1. Equities2. Debts (Corporate bonds+Government securities)

*You can decide how much you want to invest in each of them. (withsome caveats).

NPS doesn’t provide “uniform” or “guaranteed” return on your investment. Why?

1. It varies according to how much of your money is invested in Debt or Equity.2. You can only tell the fund manager how much % to invest in debt / equity but it is

upto the fund manager whether he invests in company X or Company Y. Eachfund manager has different preference for companies.

Thus different NPS account holders will end up earning different % on theirinvestment. On the other hand, the EPFO (Employees’ provident Fund) offers uniform8.5% interest rate to all account holders.

NPS-lite

So far you know that NPS was originally meant for Government employees.Later it was extend to all residents citizens of India. Let’s call that “NPS main”.Government of India + PFRDA, also initiated another scheme called “NPS-lite”.“NPS-lite” is meant for weaker and economically disadvantaged sections ofsociety.



How is it different from the “main” NPS?

(main) NPS NPS-lite

Target audience= (mostly) middle class andupwards.

Poor and lower middle class.

You’ve to give minimum Rs.500 percontribution.

Only Rs.100

You need to visit your agent/bank/fundmanager/website and pay the money.

An aggregator (e.g. NGO orMicrofinance agent) will come to youand collect money.

you get to decide the proportion of moneyyou want to invest debt vs equities (withsome conditions).

by default 85% of your money isinvested in debt and 15% in equities.

Swavalamban Scheme

Started inIn 2010.This scheme will run till 2016-17.

Targetaudience

People working in unorganized sector.

Condition?They must contribute minimum Rs.1000 to maximum Rs.12000per year into their NPS or NPS-lite account.

What isthebenefit?

Government will contribute 1000 rupees in their NPS accounteach year.They can exit early. (@age of 50 years or after being in thescheme for 20 years). while a “normal” NPS subscriber cannotexit before age of 60.

Ok, everything sounds well and good with NPS but then

Why NPS is not popular?

Main reason = Commi$$ion.

Because NPS offers very low Commission to Fund managers (ICICI, SBI, UTIetc.)So those players (ICICI, SBI) rather prefer to market their own pension,insurance, retirement plans rather than promoting NPS among their (regular)bank customers.



Same goes for financial advisor, insurance agents etc. They get moreCommission by promoting pension/insurance/retirement plans of privatecompanies to their clients compared to NPS.

Other reasons

In NPS, there are multiple actors: PFRDA, CRA and fund managers. NPS doesn’toffer uniform rate of return. Common people find this setup difficult andunsecure, unlike tried and trusted LIC or PPF.Income Tax benefits under NPS are not significantly higher than the existinginvestment options.NPS is not spending lot of money on ads with film stars / cricketers.

Why Swavalamban/NPS-lite is not popular?

Chindu@PFRDA chairman, I want you to subscribe more and more poor peoplein the Swabhiman pension scheme because elections are incoming.

PFRDAchairman

Forgive me Sir but you’re confusing Swabhiman with Swavalamban.

1. Swabhiman = provide banking facilities in remote rural areas2. Swavalamban= provide subsidy on NPS accounts for unorganized

sector.

Chindu

Ya ya Swabhiman, Swavalamban… whatever man….I’m not giving UPSCexam so I don’t need to worry about such things. Our job is to harassthose aspirants with these catchy terms- not ourselves, Got it? Comingback to the main topic: I want you to get more and more poor people inwhatever pension scheme we are running, because general elections arecoming.

PFRDAchairman

I already tried everything I could, but it’s just not working!

ChinduThen hold meetings Jholachhap NGOs and bogus microfinancecompanies and tell them to use their network of grassroot workers toform more self help groups (SHG) and get more and more subscribers.

PFRDA

It is Easier said than done because

1. I don’t have sufficient staff to organize meetings / coordinate withthose people.

2. I don’t have any coercive powers like RBI or SEBI to make othersdance on my tunes. Hell I’m not even a statutory organization yet!

3. I cannot offer heavy commission to middlemen unlike those privatesector pension and insurance firms.

4. We could ask the state Governments to use their district and taluklevel staff to increase penetration of Swavalamban, but the Non-congressi state Governments are simply not interested inpromoting a pension scheme of Central Government despite the



chairman fact that we have not named this scheme it after Indira/RajivGandhi! Or perhaps because Swavalamban doesn’t offer muchcorruption opportunities to state politicians and officials, unlike inMNREGA or Indira Awas Yojana, hence they’re not interested.

5. Poor and lower middle class people don’t have lot of surplusincome, especially in the times of inflation.

6. You’re already opening bank accounts for rural poors, to giveMNREGA payments, Direct cash transfer etc. so whatever surplusincome they’ve, they’ll save it in bank accounts. Then they’ll havehardly any cash to invest in NPS!

ChinduMan Are you suggesting that I should stop MNREGA and Direct cashtransfer so people can put more money in NPS????????

PFRDAChairman

You’re putting words in my mouth. But yes, sounds like a good idea.

ChinduWell it is definitely not a good idea sir-ji. Because MNREGA, Directbenefit transfer and food security act are the three main selling points ofour party’s election campaign.

Jokes apart, when it comes to MCQs, DONOT make silly mistakes the schemesstarting with “S”

SwavalambanGovernment gives subsidy on NPS account of unorganizedsector.

Swabhiman Increase banking penetration in remote rural areas.

Sabla(Rajiv Gandhi) Scheme for Empowerment of AdolescentGirlsGives them food, skill-training and health education.

Swadhar

This provides food, shelter, support, counseling to womenin difficult circumstances e.g.

1. destitute widows,2. women prisoners released from jail and without

family support,3. women survivors of natural disasters;4. rescued from brothels5. rape victims

Swajaldhara Improving drinking water availability in the rural areas

STEPSupport to Training and Employment Programme.



NPS Corporate Sector Model

Started in 2011.Helps firms in organized sector, to move their employees to the New pensionscheme.

Mock Questions

1. Correct Statement about NPS?a. Initially it was meant for employees in central service and armed forces.b. PFRDA, a statutory body, is responsible for implementation of NPS.c. Only nationalized banks can work as fund managers of NPS.d. None of above

2. PRAN is the account number of _______ subscriber.a. EPFOb. ESICc. NPSd. LIC

3. Correct Chronology (older to newer)a. Swabhiman, NPS, Swavalambanb. NPS, Swavalamban, Swabhimanc. Swabhiman, Swavalamaban, NPSd. None of above

4. An NRI is eligible fora. Aadhar cardb. New pension schemec. Voting from his respective constituency in Indiad. All of abovee. None of above

5. What is the purpose of Swavalamban scheme?a. Provide scholarships to poor girls pursing higher educationb. Provide financial assistance to self help groups in rural areas.c. Increase subscription of NPSd. Improve banking penetration in rural areas

6. What is the purpose of Swabhiman scheme?a. Provide scholarships to poor girls pursing higher educationb. Provide financial assistance to self help groups in rural areas.c. Increase subscription of NPSd. Improve banking penetration in rural areas

Q7. Who among following, will definitely lose his job/position if he is declaredinsolvent?

1. Central Vigilance Commissioner2. Chairman/ member of NHRC



3. Judge of supreme court

Choices

a. Only 1 and 2b. Only 2 and 3c. Only 1 and 3d. None of above

Q8. Correct statement

1. Every NPS account holder is eligible for Aadhar.2. Every Aadhar card holder is eligible for NPS.

Choices:

a. Only 1b. Only 2c. Bothd. None

Q9. Incorrect Match

1. Sabla: Widows2. Swabhiman: Physically Challenged3. Swavalamban: Unorganized Sector4. Swadhar: Women In Difficult Circumstances

Choices

a. Only 2 and 3b. Only 1 and 2c. Only 3 and 4d. All of them

Mains

1. Swavalamban (5m)2. Write a note on New Pension Scheme and its salient features (12m)3. Discuss various pension schemes launched by Government of India for the

weaker sections of society. (15m)

Interview

1. What are the flaws in NPS? If you were the chairman of PFRDA, how would youcorrect them?

2. If LIC can be successful, why can’t NPS?



3. Government shouldnot increase FDI in pension sector because it’ll hurt NPS.Agree/disagree?

URL to article: http://mrunal.org/2013/04/economy-new-pension-scheme-swavalamban-nps-lite-pfrda-meaning-issues.html

Posted By Mrunal On 12/04/2013 @ 20:11 In the category Economy

mrunal new pension scheme nps_ features, benefits, system explained

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