New Pension System extended to all citizens from 1 May

The government has extended the New Pension System to all citizens of the country with effect from 1 May, with the interim pension regulator PFRDA confirming the scheduled launch of the mega pension plan.

''The necessary infrastructure for the roll-out of New Pension System (NPS) is now ready and it will be available to all citizens of India from 1 May 2009," Pension Fund Regulatory and Development Authority said in  a release.

Tier-I of NPS constituting non-withdrawable pension account will become operational from tomorrow and Tier-II (withdrawable account) of the NPS account will become operational in about six months, the release said.

The six fund managers for the new scheme are SBI, UTI Asset Management, ICICI Prudential Life Insurance, Reliance MF, IDFC Mutual Fund and Kotak Mahindra.

Briefly, pension fund managers will manage 3 separate schemes, each investing in a different asset class. These assets classes are (i) equity, (ii) government securities and (iii) credit risk bearing fixed income instruments.

Investment by an NPS participant in equity would be subject to a cap of 50 per cent. Also the fund managers will invest only in index funds that replicate either BSE sensitive index or NSE Nifty 50 index. The subscriber will have the option to actively decide as to how the NPS pension wealth is to be invested in three asset class.

In case the subscriber is unable/unwilling to exercise any choice as regards asset allocation, his/her contribution will be invested in accordance with the 'Auto choice' option. In this option the investment will be determined by a predefined
portfolio.

At the lowest age of entry (18 years) the auto choice will entail investment of 50 per cent of pension wealth in ''E'' class, 30 per cent in ''C'' class and 20 per cent in ''G'' class.

These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in '' E'' and '' C'' asset class will decrease annually and the weight in ''G'' class will increase annually till it reaches 10 per cent in  ''E'', 10 per cent in ''C'' and 80 per cent in ''G'' class at age 55.

Starting 1 May 2009, any citizen of India desiring to open an NPS account can contact any of the twenty-two (22) Points of Presence (POPs) appointed by PFRDA. Initially, PoPs are offering NPS at limited number of branches. However, in due course the number of such branches will grow and cover every part of the country, the release said.

Branches of the registered PoPs designated as PoP Service Providers (PoP-SP) will act as the initial point of contact and collection point for all citizens other than government employees desiring to obtain a Permanent Retirement Account Number (PRAN) under NPS.

The central government has made the New Pension System (NPS) mandatory for its new recruits (except defence forces) from 1 January 2004. A majority of state governments have also shifted to the defined contribution based new pension system from varying dates.

The NPS architecture, consisting of the NPS Trust, Central Recordkeeping  Agency, Pension Fund Managers, Trustee Bank and Custodian, was made operational for central government employees from 1 April 2008. The NPS architecture has also been offered to the state governments to manage the pension corpus of their employees. The state governments are at different stages of adopting the NPS.

The NPS architecture has been in operation for over a year now and NPS corpus of central government employees amounting to over Rs2,100 crore stands invested in it. According to the unaudited results of the Pension Funds, the three pension funds have generated returns varying from 12 per cent to 16 per cent on the NPS corpus during the year 2008-09, weighted average return being over 14.5 per cent, the release noted.

Earlier, in August 2008, the government had decided to offer NPS to all citizens of India on a voluntary basis. Accordingly, PFRDA took necessary steps to scale up the existing infrastructure to roll-out the NPS for all citizens.