NPS

What is NPS?

National Pension System (NPS) is a defined contributory Pension Scheme launched by Government of India and managed by Pension Fund Regulatory and Development Authority (PFRDA). It is applicable to Bank Employees who joined Banking industry on or after 01.04.2010. As per the 11th BPS, now Bank will contribute 14% of Basic+DA against the 10% deduction of staff w.e.f. November 2020

NPS Sectors wise

Presently NPS is divided into four sectors:

• Government Sector
• Corporate Sector
• All Citizen of India
• NPS Lite/APY

Bank employees are covered

under Corporate Sector.

How to Apply?

After joining bank, one has to apply for fresh registration for this scheme through the Bank HR.  On successful registration, a Permanent Retirement Account Number (PRAN) will be allotted to the subscriber. A PRAN Kit containing PRAN card, Subscriber details (referred as Subscriber Master List) and an information booklet is sent to the subscriber's registered address.

 

What is PRAN Card?

The PRAN Card is a document with PRAN, subscriber's name, father's name, photograph and signature/thumb impression.

Sample PRAN Card

Tier-I and Tier II Account

The NPS Scheme offers two types of account

1. Tier I account – It is also known as Pension Account. Withdrawal from this account is restricted till the Subscriber attains the age of 60 yea₹ Minimum yearly contribution requirement in this account is ₹1000. However the account can be opened with initial contribution of ₹500/- As a Bank employee we are concerned with tier I  account only.
2. Tier II account – It is a normal investment account. Withdrawal from this account can be done as per the need of the Subscriber. Minimum yearly contribution requirement in this account is ₹250 however at the time of opening of account minimum contribution is ₹1000/-

An active Tier I account is mandatory for opening Tier II account.

 

Fund Options

NPS gives Subscribers option to invest according to their choice and risk appetite among four funds. Four funds under NPS are

1. Equity (Asset Class E)
2. Corporate Bonds (Asset Class C)
3. Government Securities (Asset Class G)
4. Alternative Assets

Subscriber can switch the asset allocation once in a financial year.

 

Fund Managers

There are total seven fund manager for tier-I account

1. Birla Pension Fund
2. HDFC Pension Fund
3. ICICI Pension Fund
4. Kotak Pension Fund
5. LIC Pension Fund
6. SBI Pension Fund
7. UTI Pension Fund

In my Bank we have SBI Pension Fund Pvt Ltd -CG as our fund option selected by default for all the NPS subscriber. If your Bank has given the choice to change the Pension fund manager then you can change your pension fund once in a year.

Investment Options

Depending on the risk appetite, subscribers have two investment options:

1. Active Choice – Under this option, subscriber can select the asset allocation among Equity, Corporate Bonds and Government Securities as per his / her choice.
2. Auto Choice – Under this option, fraction of funds invested across three asset classes is determined by a pre – defined portfolio which will be based on the age of the Subscriber. This is also known as Life Cycle Fund option.

 In bank we have Auto choice option by default

Tax Implications in NPS

• Employer's contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s 80CCD (2) of the Income tax Act, 1961 to the extent of 10% of basic salary. This deduction is over and above the limit of ₹1.5lakhs u/s 80 CCD (1). This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD (2) of the Income tax Act, 1961.
• Contribution by individual employee is eligible for a deduction from Income under Section 80CCD (1) of the Income Tax Act 1961 upto Rs 1.5lakhs. However, investments under Section 80C Section 80CCC and 80CCD(1) should not exceed ₹1.5lakhs per assessment year to claim for the deduction.
• An additional tax deduction of ₹50,000/- is available to NPS tier-1 account holder under section 80CCD (1B) per assessment year (applicable from A.Y 2016-17) for NPS investments.

Withdrawal from Tier I account

Amount from Tier I account can be withdrawn only on exit from NPS. Exit from NPS can be done at any point of time. The payout would be made to Subscriber as per below chart

Age	Limits
Withdrawal before the age of 60 years	Premature exit is allowed but maximum 20% will be provided in lump sum and rest in annuity form. Partial withdrawal is allowed upto 25% of Employee’s contribution and upto 3 times in following condition 1. After 10 years of contribution 2. For Construction of House property 3. For Marriage/ education of children 4. For Medical treatment.
Withdrawal on attaining the age of 60 years	Up to 60% of Corpus can be withdrawn in lump sum and minimum 40% of the Corpus needs to be invested in Annuity

Annuity Plan

After retirement, depending on the need, Subscriber can select any of the below mentioned annuity plan offered by Annuity Service Providers registered with PFRDA

• Annuity payable for life at a uniform rate to the annuitant only
• Annuity payable for 5, 10, 15 or 20 years certain and thereafter as long as you is alive
• Annuity for life with return of purchase price to nominee on death of the annuitant
• Annuity payable for life increasing at a simple rate of 3% p.a
• Annuity for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.

Check your NPS account Online

When you register for NPS you get one PRAN number which is your ID and one password. By entering the PRAN and password you can check your account online.

For direct link to login screen please Click Here

Author Comments

NPS is still in its evolution stage. It is started in the year 2004. An employee who joins the NPS at the age of 25 in the year 2004 will be retired by the year 2039. The main flaws in NPS scheme will come in light when people will be retired with NPS. Friends as on date OLD pension scheme was much better than this NPS and all the bankers including me are eagerly want OPS but at the same time we should not ignore that around year 2039 NPS will be in its complete shape. Till then many notification, orders and circulars will come and many modification in NPS will be implemented. Good Luck for all the NPS subscriber!!

Reference: NSDL Website, moneycontrol.com