The National Pension System (NPS) is a defined contribution based pension system launched by Government of India with effect from 1 January 2004. Like most other developing countries, India did not have A Universal Social Security System to protect the elderly against economic deprivation. As a first step towards instituting pension reforms, Government of India moved from a defined benefit pension to a defined contribution based pension system. Apart from offering wide gamut of investment options to employees, this scheme would help government of India to reduce its pension liabilities. Unlike existing pension fund of Government of India that offered assured benefits, NPS has defined contribution and individuals can decide where to invest their money. The scheme is structured into two tiers: Tier-I account: This NPS account does not allow premature withdrawal and is available to all citizens from 1 May 2009. Tier-II account: This NPS account permits withdrawal for exceptional reasons only, prior to the retirement age. Since 1 April 2008, the pension contributions of Central Government employees covered by the National Pension System (NPS) are being invested by professional Pension Fund Managers in line with investment guidelines of Government applicable to non-Government Provident Funds. A majority of State Governments have also shifted to the defined contribution based National Pension System from varying dates. 28 State/UT Governments have notified the NPS for their new employees. Of these, 5 states have already signed agreements with the intermediaries of the NPS architecture appointed by Pension Fund Regulatory and Development Authority (PFRDA) for carrying forward the implementation of the National Pension System. The other States are in the process of finalization of documentation. Withdrawal norms If subscribers exits before 60 years of age,subject to VRS, they will have to invest 80% of accumulated saving to purchase a life annuity from IRDA regulate life insurer. The remaining 20% may be withdrawn as Lumpsum. On exit after age 60 years from the pension system, the subscriber would be required to invest at least 40% of pension wealth to purchase an annuity & remaining 60% will be repaid as a Lumpsum. In case of Government employees, the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. If subscriber does not exit the system at or before 70 years, account would be closed with the benefits transferred to subscriber in a Single-100% Lumpsum. If a subscriber dies, the nominee has the option to receive the entire pension wealth as a Lumpsum. Recent changes permit subscriber to continue to remain invested after 60 and up to 70 but subscriber can no longer add further investments. Subscriber to intimate the period of deferment and can not withdraw during the deferment period. If the subscriber does not exit by 70, the entire Lumpsum will be monetised and transferred to subscribers bank account as a Full&Final Settlement. (A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity. The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate and the remainder of the fund accumulated is forfeited unless there are other annuitants or beneficiaries in the contract. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individuals lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.)
Posted on: Sat, 15 Mar 2014 11:24:55 +0000
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