National Pension Scheme | NPS Lite Scheme | Swavalamban Yojana


National Pension System (NPS) is an initiative of Pension Fund Regulatory and Development Authority (PFRDA), the apex body established by Government of India to regulate and develop the pension sector in India. NPS has been extended to all citizens of India with effect from 1st May 2009. To extend the coverage of NPS to the weaker and economically disadvantaged sections of the society with their limited investment potential, PFRDA has launched NPS- Lite which specifically targets the marginal investors and promotes small savings during their productive life. It aims at building up a corpus sufficient enough to buy an annuity for their old age. 

The NPS Lite scheme, which aims to provide pension to the economically weaker sections, has received a thunderous response, with almost 6 lakh accounts opened since its launch. "NPS-Lite Model" is designed to ensure ultra-low administrative and transactional costs, so as to make such small investments viable. NPS-Lite works on a "group" model. It also aims at harnessing the outreach and capacity of the Government operated schemes, NGOs, MFIs, NBFCs etc. in targeting and servicing the old age savings needs of low income workers. While the NPS is managing assets worth over Rs 8,000 crore, almost 99% of this is the Central and state government pension accounts. The total assets of the 47,000-odd voluntary investors amount to less than Rs 80 crore. Serious investors are still not interested in the NPS. The scheme has not managed to rope in even 0.1% of the 50 million voluntary investors it was expected to attract.

Why NPS an attractive option of Investment?

The entry costs of the NPS are also very low. The NPS is arguably the cheapest investment option in the market. The scheme charges Rs 9 a year for managing a corpus of Rs 1 lakh. Yes, there is also a Rs 350 charged every year for the Permanent Retirement Account Number but the total cost is still lower than the Rs 1,500-2,250 charged by mutual funds and Rs 1,500 charged by Ulips. Over the long term, this difference in the recurring charge can lead to a huge difference in the returns for the investor.

Switching Between fund managers : There are six fund managers handling the investments in NPS. Unlike a mutual fund or a Ulip, the NPS offers the investor to switch from one fund manager to another if he is not satisfied with the performance of a certain fund. Withdrawing from one fund and investing in another will not have any tax implication because the money remains invested. 

More tax benefits : From the next financial year, contributions by employers to the NPS accounts of their employees can be deducted as a business expense. Currently, the contribution made by an employer to the NPS is not allowed as a deduction. Also, such contributions will not be part of the Rs 1 lakh tax deduction limit under Section 80C. Since contributions to NPS are not taxable, your employer's contribution on your behalf will be a tax free benefit for you.

Exposure in equities : Maximum exposure to equities is limited to 50% and that too in Nifty-based stocks in the same proportion. The funds are also supposed not to invest in bonds below the AA rating. But some funds are apparently breaking the rules and investing in riskier BBB-rated paper to boost returns.

Issues with NPS
Less attractive to sell : Since the commission for NPS is very marginal,fund managers are less attractive in selling the product.
Compulsary withdrawal : Contributions stop and withdrawals begin at 60 and you have to compulsorily withdraw the entire amount by the time you are 70. Such a condition can pose a problem to a person who plans to stop working at age 65 and expects to live till 75-80 years. 

Swavalamban Yojana
It will be applicable to all citizens in the unorganised sector who join the New Pension System. Under the scheme, Government will contribute Rs. 1000 per year to each NPS account opened in the year 2010-11 and for the next three years, that is, 2011-12, 2012-13 and 2013-14. The benefit will be available only to persons who join the NPS with a minimum contribution of Rs. 1,000 and maximum contribution of Rs. 12,000 per annum. The exit from the Swavalamban Scheme would be on the same terms and conditions on which exit from Tier-I account of NPS is permitted, that is, exit at age 60 with 40% minimum annuitisation of pension wealth and exit before age 60 with 80% minimum annuitisation of pension wealth. However, the exit would be subject to the overriding condition that the amount of pension wealth to be annuitised should be sufficient to yield a minimum amount of Rs. 1,000 per month.

source : economic times, pfrda.org.in

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