What is PFRDA?

Pension Fund Regulatory and Development Authority (PFRDA) Union Government created this body via an executive order. (2003) To regulate and develop the pension sector in India. PFRDA is not a statutory body yet. (Because bill related to PFRDA is yet to be passed). Timeline:

2003 2004 2009

PFRDA established (compulsory) New Pension System (NPS), for the new recruits in Government of India (except the armed forces). New Pension System (NPS) is opened up for any citizens in India who wanted to subscribe, even if they are not in Government service.

Just like weve NPS in India, In USA, theyve a pension scheme for all citizens called 401 (K). Two accounts In New Pension scheme, there are two types of account

Tier-I Compulsory for every subscriber You cannot Premature withdraw money before retirement age.

Tier II Optional.You can open Tier II, only if youve opened a Tier I account first. Can NPS: Eligibility

Who can join? Any citizen of India (age 18-60)

Who cannot join? Below 18 and above 60 1. 2. A person declared insolvent. Person of unsound mind.

NRI can also join, if he has account in Indian bank.

What is PRAN?

When you subscribe to New pension scheme, youre given a unique account number. Known as Permanent Retirement Account Number (PRAN) Recall that UID/Aadhar also gives you a unique number. But there are differences: Aadhar vs PRAN: Difference UID/Aadhar PRAN Only Indian citizen Only 18-60 Youve to make regular payments.

Any resident of India Any age Free

This number doesnt give any benefits by itself. It is upto an individual ministry / Department to use this number while giving some scholarship, subsidy, cash benefit etc. PRAN number gives you pension.

Mentally-unsound and insolvent can get. Voluntary

Cant. Compulsory for new recruits in Government service (minus armed forces).

Aadhar vs PRAN: Similarity 1. 2. For a private citizen, both are voluntary. NRI can apply for both. Players in the NPS game Subscriber PFRDA Person who joins for New pension scheme.. Pension Fund Regulatory & Development Authority. Main boss for NPA.

CRA

Central record keeping agency. National Securities Depository Limited (NSDL) works as the CRA for NPA. It maintains record of every subscriber, based on his PRAN number. (recall this NSDL also works as a Depository and holds your securities (bonds,shares etc) in electronic (dematerialized) form.

ICICI, UTI, SBI, Kotak etc are the fund managers for NPS.You can decide which fund manager you want to pick up. When you contribute money to NPS, it goes to these fund managers. They invest your money in following* Fund manager 1. 2. Equities Debts (Corporate bonds+Government securities)

*You can decide how much you want to invest in each of them. (with some caveats).

NPS doesnt provide uniform or guaranteed return on your investment. Why? 1. 2. It varies according to how much of your money is invested in Debt or Equity. You can only tell the fund manager how much % to invest in debt / equity but it is upto the fund manager whether he invests in company X or Company Y. Each fund manager has different preference for companies.

Thus different NPS account holders will end up earning different % on their investment. On the other hand, the EPFO (Employees provident Fund) offers uniform 8.5% interest rate to all account holders.

NPS-lite

So far you know that NPS was originally meant for Government employees. Later it was extend to allresidents citizens of India. Lets call that NPS main. Government of India + PFRDA, also initiated another scheme called NPS-lite. NPS-lite is meant for weaker and economically disadvantaged sections of society. How is it different from the main NPS?

(main) NPS Target audience= (mostly) middle class and upwards. Youve to give minimum Rs.500 per contribution. You need to visit your agent/bank/fund manager/website and pay the money. you get to decide the proportion of money you want to invest debt vs equities (with some conditions).

NPS-lite Poor and lower middle class. Only Rs.100 An aggregator (e.g. NGO or Microfinance agent) will come to you and collect money. by default 85% of your money is invested in debt and 15% in equities.

Swavalamban Scheme

Started in

In 2010. This scheme will run till 2016-17.

Target audience Condition?

People working in unorganized sector.

They must contribute minimum Rs.1000 to maximum Rs.12000 per year into their NPS or NPS-lite account.

Government will contribute 1000 rupees in their NPS account each year. They can exit early. (@age of 50 years or after being in the scheme for 20 years). while a normal NPS subscriber cannot exit before age of 60.

What is the benefit?

Ok, everything sounds well and good with NPS but then Why NPS is not popular? Main reason = Commi$$ion.

Because NPS offers very low Commission to Fund managers (ICICI, SBI, UTI etc.) So those players (ICICI, SBI) rather prefer to market their own pension, insurance, retirement plans rather than promoting NPS among their (regular) bank customers. Same goes for financial advisor, insurance agents etc. They get more Commission by promoting pension/insurance/retirement plans of private companies to their clients compared to NPS.

Other reasons

In NPS, there are multiple actors: PFRDA, CRA and fund managers. NPS doesnt offer uniform rate of return. Common people find this setup difficult and unsecure, unlike tried and trusted LIC or PPF. Income Tax benefits under NPS are not significantly higher than the existing investment options. NPS is not spending lot of money on ads with film stars / cricketers. Why Swavalamban/NPS-lite is not popular? @PFRDA chairman, I want you to subscribe more and more poor people in the Swabhiman pension scheme because elections are incoming. Forgive me Sir but youre confusing Swabhiman with Swavalamban.

Chindu

PFRDA chairman

1. 2.

Swabhiman = provide banking facilities in remote rural areas Swavalamban= provide subsidy on NPS accounts for unorganized sector.

Chindu PFRDA chairman Chindu

Ya ya Swabhiman, Swavalamban whatever man.Im not giving UPSC exam so I dont need to worry about such things. Our job is to harass those aspirants with these catchy terms- not ourselves, Got it? Coming back to the main topic: I want you to get more and more poor people in whatever pension scheme we are running, because general elections are coming. I already tried everything I could, but its just not working! Then hold meetings Jholachhap NGOs and bogus microfinance companies and tell them to use their network of grassroot workers to form more self help groups (SHG) and get more and more subscribers. It is Easier said than done because 1. 2. 3. 4. I dont have sufficient staff to organize meetings / coordinate with those people. I dont have any coercive powers like RBI or SEBI to make others dance on my tunes. Hell Im not even a statutory organization yet! I cannot offer heavy commission to middlemen unlike those private sector pension and insurance firms. We could ask the state Governments to use their district and taluk level staff to increase penetration of Swavalamban, but the Non-congressi state Governments are simply not interested in promoting a pension scheme of Central Government despite the fact that we have not named this scheme it after Indira/Rajiv Gandhi! Or perhaps because Swavalamban doesnt offer much corruption opportunities to state politicians and officials, unlike in MNREGA or Indira Awas Yojana, hence theyre not interested. Poor and lower middle class people dont have lot of surplus income, especially in the times of inflation. Youre already opening bank accounts for rural poors, to give MNREGA payments, Direct cash transfer etc. so whatever surplus income theyve, theyll save it in bank accounts. Then theyll have hardly any cash to invest in NP S!

PFRDA chairman

5. 6.

Chindu PFRDA Chairman Chindu

Man Are you suggesting that I should stop MNREGA and Direct cash transfer so people can put more money in NPS???????? Youre putting words in my mouth. But yes, sounds like a good idea. Well it is definitely not a good idea sir-ji. Because MNREGA, Direct benefit transfer and food security act are the three main selling points of our partys election campaign.

Jokes apart, when it comes to MCQs, DONOT make silly mistakes the schemes starting with S

Swavalamban Swabhiman Sabla

Government gives subsidy on NPS account of unorganized sector. Increase banking penetration in remote rural areas. (Rajiv Gandhi) Scheme for Empowerment of Adolescent GirlsGives them food, skill-training and health education. This provides food, shelter, support, counseling to women in difficult circumstances e.g. 1. 2. 3. 4. 5. destitute widows, women prisoners released from jail and without family support, women survivors of natural disasters; rescued from brothels rape victims

Swadhar

Swajaldhara STEP

Improving drinking water availability in the rural areas Support to Training and Employment Programme. NPS Corporate Sector Model

Started in 2011. Helps firms in organized sector, to move their employees to the New pension scheme.