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 be
passed).
Timeline:
2003 PFRDA established
2004
(compulsory) New Pension System (NPS), for the new recruits in
Government of India (except the armed forces).
2009
New Pension System (NPS) is opened up for any citizens in India who wanted
to subscribe, even if they are not in Government service.
Just like weve NPS in India, In USA, theyve a pension scheme for all citizens called
401 (K).
Two accounts
In New Pension scheme, there are two types of account
Tier-I Tier II
Compulsory for every subscriber
Optional.You can open Tier II, only if youve
opened a Tier I account first.
You cannot Premature withdraw
money 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 Indian
bank.
1. A person declared insolvent.
2. Person of unsound mind.
What is PRAN?
When you subscribe to New pension scheme, youre given a unique account
number. Known as Permanent Retirement Account Number (PRAN)
Recall that UID/Aadhar also gives you a unique number. But there are
differences:
Aadhar vs PRAN: Difference
UID/Aadhar PRAN
Any resident of India Only Indian citizen
Any age Only 18-60
Free
Youve to make regular
payments.
This number doesnt give any benefits by
itself.
It is upto an individual ministry / Department
to use this number while giving some
scholarship, subsidy, cash benefit etc.
PRAN number gives you
pension.
Mentally-unsound and insolvent can get. Cant.
Voluntary
Compulsory for new recruits
in Government service (minus
armed 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..
PFRDA
Pension Fund Regulatory & Development Authority. Main boss for
NPA.
CRA
Central record keeping agency.
National Securities Depository Limited (NSDL) works as the
CRA for NPA. It maintains record of every subscriber, based on
his PRAN number.
(recall this NSDL also works as a Depository and holds your
securities (bonds,shares etc) in electronic (dematerialized) form.
Fund
manager
ICICI, UTI, SBI, Kotak etc are the fund managers for NPS.You can
decide which fund manager you want to pick up.When you contribute
money to NPS, it goes to these fund managers. They invest your money
in following*
1. Equities
2. Debts (Corporate bonds+Government securities)
*You can decide how much you want to invest in each of them. (with
some caveats).
NPS doesnt 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. Each
fund manager has different preference for companies.
Thus different NPS account holders will end up earning different % on their
investment. On the other hand, the EPFO (Employees provident Fund) offers uniform
8.5% 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. Lets 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 of
society.
How is it different from the main NPS?
(main) NPS NPS-lite
Target audience= (mostly) middle class and
upwards.
Poor and lower middle class.
Youve to give minimum Rs.500 per
contribution.
Only Rs.100
You need to visit your agent/bank/fund
manager/website and pay the money.
An aggregator (e.g. NGO or
Microfinance agent) will come to you
and collect money.
you get to decide the proportion of money
you want to invest debt vs equities (with
some conditions).
by default 85% of your money is
invested in debt and 15% in equities.
Swavalamban Scheme
Started in
In 2010.
This scheme will run till 2016-17.
Target
audience
People working in unorganized sector.
Condition?
They must contribute minimum Rs.1000 to maximum Rs.12000
per year into their NPS or NPS-lite account.
What is
the
benefit?
Government will contribute 1000 rupees in their NPS account
each year.
They can exit early. (@age of 50 years or after being in the
scheme for 20 years). while a normal NPS subscriber cannot
exit 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, UTI
etc.)
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 more
Commission by promoting pension/insurance/retirement plans of private
companies to their clients compared to NPS.
Other reasons
In NPS, there are multiple actors: PFRDA, CRA and fund managers. NPS doesnt
offer uniform rate of return. Common people find this setup difficult and
unsecure, unlike tried and trusted LIC or PPF.
Income Tax benefits under NPS are not significantly higher than the existing
investment 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 people
in the Swabhiman pension scheme because elections are incoming.
PFRDA
chairman
Forgive me Sir but youre confusing Swabhiman with Swavalamban.
1. Swabhiman = provide banking facilities in remote rural areas
2. Swavalamban= provide subsidy on NPS accounts for unorganized
sector.
Chindu
Ya ya Swabhiman, Swavalamban whatever man.Im not giving UPSC
exam so I dont need to worry about such things. Our job is to harass
those aspirants with these catchy terms- not ourselves, Got it? Coming
back to the main topic: I want you to get more and more poor people in
whatever pension scheme we are running, because general elections are
coming.
PFRDA
chairman
I already tried everything I could, but its just not working!
Chindu
Then hold meetings Jholachhap NGOs and bogus microfinance
companies and tell them to use their network of grassroot workers to
form more self help groups (SHG) and get more and more subscribers.
PFRDA
It is Easier said than done because
1. I dont have sufficient staff to organize meetings / coordinate with
those people.
2. I dont have any coercive powers like RBI or SEBI to make others
dance on my tunes. Hell Im not even a statutory organization yet!
3. I cannot offer heavy commission to middlemen unlike those private
sector pension and insurance firms.
4. We could ask the state Governments to use their district and taluk
level staff to increase penetration of Swavalamban, but the Non-
congressi state Governments are simply not interested in
promoting a pension scheme of Central Government despite the
chairman fact that we have not named this scheme it after Indira/Rajiv
Gandhi! Or perhaps because Swavalamban doesnt offer much
corruption opportunities to state politicians and officials, unlike in
MNREGA or Indira Awas Yojana, hence theyre not interested.
5. Poor and lower middle class people dont have lot of surplus
income, especially in the times of inflation.
6. Youre already opening bank accounts for rural poors, to give
MNREGA payments, Direct cash transfer etc. so whatever surplus
income theyve, theyll save it in bank accounts. Then theyll have
hardly any cash to invest in NPS!
Chindu
Man Are you suggesting that I should stop MNREGA and Direct cash
transfer so people can put more money in NPS????????
PFRDA
Chairman
Youre putting words in my mouth. But yes, sounds like a good idea.
Chindu
Well it is definitely not a good idea sir-ji. Because MNREGA, Direct
benefit transfer and food security act are the three main selling points of
our partys election campaign.
Jokes apart, when it comes to MCQs, DONOT make silly mistakes the schemes
starting with S
Swavalamban
Government gives subsidy on NPS account of unorganized
sector.
Swabhiman
Increase banking penetration in remote rural areas.
Sabla
(Rajiv Gandhi) Scheme for Empowerment of Adolescent
GirlsGives them food, skill-training and health education.
Swadhar
This provides food, shelter, support, counseling to women
in 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 brothels
5. rape victims
Swajaldhara
Improving drinking water availability in the rural areas
STEP
Support to Training and Employment Programme.
NPS Corporate Sector Model
Started in 2011.
Helps firms in organized sector, to move their employees to the New pension
scheme.
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. EPFO
b. ESIC
c. NPS
d. LIC
3. Correct Chronology (older to newer)
a. Swabhiman, NPS, Swavalamban
b. NPS, Swavalamban, Swabhiman
c. Swabhiman, Swavalamaban, NPS
d. None of above
4. An NRI is eligible for
a. Aadhar card
b. New pension scheme
c. Voting from his respective constituency in India
d. All of above
e. None of above
5. What is the purpose of Swavalamban scheme?
a. Provide scholarships to poor girls pursing higher education
b. Provide financial assistance to self help groups in rural areas.
c. Increase subscription of NPS
d. Improve banking penetration in rural areas
6. What is the purpose of Swabhiman scheme?
a. Provide scholarships to poor girls pursing higher education
b. Provide financial assistance to self help groups in rural areas.
c. Increase subscription of NPS
d. Improve banking penetration in rural areas
Q7. Who among following, will definitely lose his job/position if he is declared
insolvent?
1. Central Vigilance Commissioner
2. Chairman/ member of NHRC
3. Judge of supreme court
Choices
a. Only 1 and 2
b. Only 2 and 3
c. Only 1 and 3
d. 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 1
b. Only 2
c. Both
d. None
Q9. Incorrect Match
1. Sabla: Widows
2. Swabhiman: Physically Challenged
3. Swavalamban: Unorganized Sector
4. Swadhar: Women In Difficult Circumstances
Choices
a. Only 2 and 3
b. Only 1 and 2
c. Only 3 and 4
d. 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 you
correct them?
2. If LIC can be successful, why cant NPS?
3. Government shouldnot increase FDI in pension sector because itll 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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