The Central Government has introduced the New Pension System (NPS) with effect from January 1, 2004. The new pension system covers, at present, new entrants to Central Government services (excluding Defence Forces) and is expected in due course to be available to all other citizens of India. Under the new pension system, CRA will be required to maintain subscriber accounts and issue a unique Permanent Retirement Account Number (PRAN) to each subscriber. In this system, deductions towards NPS will be made from subscriber’s salary on monthly basis and equal amount of contribution will be made by the Government. The accumulated amount will be reflected in his/her Permanent Retirement Account while he/she is working and shall use the accumulations at retirement to procure a pension for the rest of his/her life. Subscribers in this system shall enjoy certain facilities and rights including portability across jobs and locations, choices of selection of Pension Funds and investment schemes, freedom to switch between service providers and nationwide access.
NSDL has built necessary infrastructure for providing CRA services to various stakeholders. CRA has gone operational from June, 2008. CRA would manage NPS Contribution Accounting Network (NPSCAN) related data until it is separated from the CRA applications. The NPS is expected to evolve over a period of time to include unorganized sector, self employed persons and any other citizen of India on a voluntary basis. The record keeping function of unorganized sector shall be decided by PFRDA / GoI independently in due course.
Role of CRA in NPS system
a)The recordkeeping, administration and customer service functions for all subscribers of the New Pension System will be centralised and performed by the CRA.
b)The CRA will issue unique Permanent Retirement Account Number (PRAN) to each subscriber, maintain database of all PRANs and record the transactions related to each subscriber’s PRAN
c)The CRA shall be responsible for receiving funds and instructions from subscribers through the nodal offices, transmitting such instructions and funds to the appointed Pension Fund Managers, trustee Bank, Annuity Service Provider effecting switching instructions received from subscribers
d)The CRA will provide periodic consolidated Statement Of Transaction (SOT) to each subscriber and discharge such other duties and functions as may be determined by the guidelines, directions and regulations issued by the PFRDA from time to time
e)The CRA will be responsible to maintain absolute confidentially of all records, data and information. CRA shall produce all this information as and when called for by PFRDA
f)The CRA will be responsible for timely transfer of subscriber contributions information, timely allocation of these funds by PFs, and accurately crediting and reporting allocation of units into each PRAN.
Main Features and Architecture of the New Pension System
The new pension system would be based on defined contributions. It will use the existing network of bank branches and post offices etc. to collect contributions. There will be seamless transfer of accumlations in case of change of employment and/or location. It will also offer a basket of investment choices and Fund managers. The new pension system will be voluntary.
The system would, however, be mandatory for new recruits to the Central Government service (except the armed forces). The monthly contribution would be 10 percent of the salary and DA to be paid by the employee and matched by the Central Government. However, there will be no contribution from the Government in respect of individuals who are not Government employees. The contributions and returns thereon would be deposited in a non-withdrawable pension account. The existing provisions of defined benefit pension and GPF would not be available to the new recruits in the central Government service.
In addition to the above pension account, each individual can have a voluntary tier-II withdrawable account at his option. Government will make no contribution into this account. These assets would be managed in the same manner as the pension. The accumlations in this account can be withdrawn anytime without assigning any reason.
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 for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual would receive a lump-sum of the remaining pension wealth, which she would be free to utilize in any manner. 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.
There will be one or more central record keeping agency (CRA), several pension fund managers (PFMs) to choose from which will offer different categories of schemes.
The participating entities (PFMs, CRA etc.) would give out easily understood information about past performance & regular NAVs, so that the individual would able to make informed choices about which scheme to choose.