NPS was implemented for Central Government employees including employees working with Central Government Autonomous Bodies in 2004. Employees joining the Central Government / Central Government Autonomous Body services effective 1st January 2004 are mandated to join NPS.

As per the earlier policy, 10% of Salary (Basic and Dearness Allowance) was getting deducted from employee’s salary and matching contribution was deposited by respective Government unit in the NPS account of the employee. Both the contributions were invested as per the investment guidelines for Central Government / Central Government Autonomous Body employees, defined by PFRDA.

As per the recent mandate from the Government, contribution from Government unit is increased to 14% of Salary (Basic + Dearness Allowance). Employee’s contribution part remains the same (10% of Basic + Dearness Allowance).

 

Investment options for Government Employees

As per the old policy, NPS funds of Central Government employees and Central Government Autonomous Bodies employees get invested in a pre-defined pattern in a combination of debt and equity related instruments as shown below:

  1. Up to 15% invested in equity or equity related instruments and
  2. Balance to be invested in debt related instruments.

In long run, higher exposure in equity / equity related instruments generates superior returns on investment hence the above restriction has been restricting growth of their retirement corpus.

At the same time, their funds were getting distributed only to 3 Fund Managers as a mandate, restricting their choice of fund manager.

The same has been done away with now. From April 1, 2019, Central Government / Central Government Autonomous Body employees have the option to opt for a Pension Fund Manager (PFM) of their choice for managing their retirement corpus. Not only that, these employees can opt for various investment approaches as per their goal. These are:

Scheme LC 50 – Life cycle fund where the Cap to Equity investments is 50% of the total asset.

Scheme LC 25 – Life cycle fund where the Cap to Equity investments is 25% of the total asset.

Scheme G – 100% contribution is invested in Government Bonds and related instruments.

If the employee does not make any of the above choices, NPS contributions would be invested in the existing default old scheme.

 

How does LC50 and LC25 Life Cycle Fund Work?

Life Cycle fund works in a fashion where the exposure to a higher risk instrument keeps on reducing each year and moves towards debt related instruments. This ensures that as you reach near your retirement age, the exposure in equity / equity related instruments are low and even if there is volatility in market, your retirement corpus is intact.

Please have a look at the below chart giving details of investment pattern in LC 50 and LC 25.

 

Age in Yrs LC 50 LC 25
E C G E C G
<=35 50% 30% 20% 25% 30% 45%
36 48% 29% 23% 24% 33% 43%
37 46% 28% 26% 23% 36% 41%
38 44% 27% 29% 22% 39% 39%
39 42% 26% 32% 21% 42% 37%
40 40% 25% 35% 20% 45% 35%
41 38% 24% 38% 19% 48% 33%
42 36% 23% 41% 18% 51% 31%
43 34% 22% 44% 17% 54% 29%
44 32% 21% 47% 16% 57% 27%
45 30% 20% 50% 15% 60% 25%
46 28% 19% 53% 14% 63% 23%
47 26% 18% 56% 13% 66% 21%
48 24% 17% 59% 12% 69% 19%
49 22% 16% 62% 11% 72% 17%
50 20% 15% 65% 10% 75% 15%
51 18% 14% 68% 9% 78% 13%
52 16% 13% 71% 8% 81% 11%
53 14% 12% 74% 7% 84% 9%
54 12% 11% 77% 6% 87% 7%
>= 55 10% 10% 80% 5% 90% 5%

 

 

Steps to Change the Pension Fund Manager and Investment Strategy

Log in to CRA portal using your PRAN# and Password.
Click on “Change Scheme Preference” tab under “Transact Online” menu. Select “Tier I” account and click on submit button. Page shall show the existing scheme preference and asset allocation.
Click on “PFM change” and “Scheme Preference Change” check boxes and click on submit button. Select “HDFC Pension Management Company Limited” and “Auto Choice” and submit. Select “Moderate Auto Choice”.
Submit the OTP received on your mobile. Please get the request authorized by your nodal officer to complete the transaction.

 

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