- NPS has unbundled Architecture, where each function is performed by different entities.
NPS is based on Personal retirement accounts (PRAs) created for individual members. NPS accumulates savings into subscriber's PRA while he is working and use the accumulations at retirement to procure a pension for the rest of his life.
- PFRDA, a Prudent Regulator created by Government of India.
- Central Record keeping lies with NSDL which is associated with various National level projects for recordkeeping functions.
- Renowned Financial Institutions covering Public/Private Sector Banks, NBFC, Broking houses acting as POP.
- Funds are managed by Fund Manager from Public & Private sector with proven track record.
- Axis Bank, functions as Trustee Bank.
- Stock Holding Corporation of India Ltd, functions as custodian for NPS.
NPS has an unbundled Architecture, where each function is performed by a different entity. NPS is a unique product which provides an opportunity for subscribers, to be serviced by the intermediaries which are renowned in their areas, that too at low cost, like:
- At present, More than 50 POPs with over 14000 POP-SPs are registered for providing NPS services.
- At present, 7 Annuity service providers have been selected to provide the Annuity.
- HDFC Life is one of the approved Annuity Service Provider for NPS scheme.
- The new pension system is based on defined contributions. It uses the existing network of bank branches, post offices etc to collect contributions. There is seamless transfer of accumulations in case of change of employment and/or location. It also offers a basket of investment choices and Fund Managers. The new pension system is voluntary.
- Individuals can normally exit at or after age 60 years from the pension system. At exit, the individual would be required to invest at least 40 percent of pension wealth to purchase an annuity. In case of Government employees, the annuity should provide pension for the lifetime of the employee, his dependent parents and spouse at the time of retirement. The individual would receive a lump-sum of the remaining pension wealth, which he would be free to utilize. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitisation would be 80% of the pension wealth.
- The participating entities (PFMs, CRA etc.) would give out easily understood information about past performance & regular NAVs, so that the individual would be able to make informed choices from the schemes.
- NPS account can be operated from anywhere in the country irrespective of employment and geography.
- Subscribers can shift within the sector and from one sector to another.
- NPS is covered under the Income Tax Act, 1961 for tax benefits.
Currently NPS has 'Exempt-Exempt-Taxation' (EET) where
- Investment up to 1 Lakh in Tier I account is exempted
- Withdrawal are subject to tax
As per the Proposed Direct Tax Code (DTC), NPS will have Exempt-Exempt-Exempt (EEE) status
- All investments (Up to Rs.1 Lakh) made under Tier I account under NPS are exempted
- No tax at the time of withdrawal
- There is no exemption on Investments made under Tier II account.