Pension plans provide financial security and stability during old age when people don't have a regular

source of
income. Retirement plan ensures that people live with pride and without compromising on their standard of living
during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum
amount as regular income through annuity plan on retirement.

The National Pension System (NPS)[1] is a defined-contribution pension system operated by the Government of
India. This scheme allows individuals to make decisions about where their pension fund is invested. You can
withdraw the amount prior to retirement. This scheme reduces the total pension liabilities of the Government of
India. There is a tax benefit associated with this scheme. The process for opening a Permanent retirement Account
Number (PRAN) is simplified. This scheme is continuously evolving with new benefits and new regulations.
NPS is the most economical Government approved pension scheme. Indian citizens in the 18-60 age group are
eligible for this scheme. It was launched by Pension Fund Regulatory and Development Authority (PFRDA) in
2004. The minimum yearly contribution is Rs 6,000, which either can be paid in one go or in installments of at least
Rs 500.
NPS is the cheapest market linked retirement plan among all other Retirement plans (EPF, PPF and Mutual Funds).
This suggests that it would have recorded maximum number of sales. But due to excessively less payment of
incentive/commission to the intermediaries, it is not getting promoted by them.
The Scenario when the scheme was launched was worse, the fund management cost was limited at 0.0009 per
cent and points of presence, or PoPs, where investors open the account, were not permitted to charge more than
Rs 20 per account, regardless of how big the investment was. Then there was an account opening charge of Rs 50
for the central record-keeping agency, or CRA, in addition to an annual CRA fee of Rs 225.
The fund management fee for non-government funds has now increased to 0.25 per cent and for government funds
it has increased 0.0102 per cent. Also, POPs are permitted to charge Rs.100 plus 0.25 percent of the investment.
This change will surely act as an encouragement for the agents who will now actively market the product.
There are two types of accounts that NPS offers:
Tier-I Account
It is a basic pension account with limitations on withdrawal
Before attaining 60 years of age, only 20% of the contribution can be withdrawn while the rest 80% has to be
necessarily used for buying annuity from a life insurer. Annuity is a series of payments made at fixed intervals of
time. However, annuity plans necessitate the insurer to pay the insured income at regular intervals until his death or
till maturity of the plan.
After attaining the age of retirement also (60 years), close to 60% contribution can be withdrawn and the rest 40%
again has to be used to purchase annuity from approved life insurers.
Tier-II Account
It is a voluntary savings option from which a person can withdraw money limitless. A tier-2 account is a Prospective
payment system (PPS) account that permits some withdrawal of pension prior to retirement.
Some of the benefits of the National Pension System (NPS) are:
It is transparent - NPS is transparent and cost effective system wherein the pension contributions are
invested in the pension fund schemes and the employee will be able to know the value of the investment on
day to day basis.
It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a
Permanent Retirement Account Number (PRAN).
It is portable - Each employee is identified by a unique number and has a separate PRAN which is portable
i.e., will remain same even if an employee gets transferred to any other office.
It is regulated - NPS is regulated by Pension Fund Regulatory and Development. Transparent investment
norms & regular monitoring and performance review of fund managers by NPS trust.

The contributions are invested in a combination of asset classes-equity (Asset Class E), government bonds (Asset
Class G) and a mix of liquid funds, corporate debt, fixed deposits, etc (Asset Class C). Exposure to equity cannot
exceed 50 per cent.

Generally, People start investing in pension plans from the age of 35 or so. However, their preferred mix will differ as
the age goes up. Initially they are intended to invest in risky class. But as the age continues to grow they tend to
invest in risk free investments.
Working professional can be targeted. People with the annual income more than 3 lakhs can be targeted. Actually,
these people will look for the tax benefits. NPS offers additional tax benefit of Rs.50000 apart from the regular 1.5
lakh rupees tax benefit. The Finance Bill 2011-12 permits tax deduction on contribution up to 10 per cent of basic
salary and dearness allowance (DA) made by an employer towards the NPS account of an employee under Section
80CCE. This is over and above the Rs.1 lakh limit and is applicable if the contribution is done by the employer. This
makes the corporate house subscribe to NPS for paying to their Employees.
If you are not confident about deciding the asset allocation yourself, your money will be invested in a Life Cycle
Fund, a combination of the above three asset classes. In this, as you age, exposure to equity falls while that to
government securities rises.
The money is managed by seven fund managers appointed by the PFRDA. While the accounts of government
employees are managed by one of the three government fund managers, LIC Pension Plan, SBI Pension Plan and
UTI Retirement Solutions, the money invested by others is managed by one of the six fund managers, ICICI
Prudential Pension, IDFC Pension, Kotak Mahindra Pension, Reliance Capital Pension, SBI Pension Funds and UTI
Retirement Solutions. You have to opt for a fund manager while opening the account.
NPS is the cheapest when compared to the other type of investments. Provide reliable returns