FAQ on National Pension System (NPS)

Contents

1) What is NPS? .....................................................................................................................................2

2) Who can invest in NPS? .....................................................................................................................2

3) What are the benefits of NPS? ..........................................................................................................2

4) What are the types of account under NPS? ......................................................................................2

5) What are the differences between Tier I and Tier II accounts? ........................................................3

6) What are the tax benefits available under NPS? ...............................................................................3

7) What are the charges under NPS? .....................................................................................................3

8) Who manages the amounts contributed to NPS? ..............................................................................4

9) Where do the funds get invested? .....................................................................................................5

10) What are the risks to take note of? ..................................................................................................5

11) How do I enroll myself for the NPS? .................................................................................................6

12) Is NPS in addition to PF and Superannuation or replaces them? ......................................................6

13) Who is going to be the Point of contact for NPS? .............................................................................6

14) What kind of documentation is required to be completed? .............................................................6

15) Where can I get more details about the NPS? ..................................................................................7
1) What is NPS?

New Pension System (NPS) is a scheme introduced originally in 2003 by the Government of India to
enable individuals to save for their retirement, and was extended in 2009 to cover employees of private
sector as well. Effective April 1st, 2011, the Government has exempted from Income tax the
contribution
through the employer.

The scheme is administered and controlled by the Pension Fund Regulatory & Development Authority –
PFRDA (www.pfrda.org.in)

In NPS, a subscriber contributes every year till retirement and the contribution is invested as per the
investment pattern selected by the subscriber. On retirement, part of the investment corpus (Pension
Wealth) accumulated is paid in lump sum while the remaining goes in purchasing a life annuity which
will ensure stable monthly income to the subscriber till death.

2) Who can invest in NPS?

Any Indian citizen, whether resident or non‐resident, can invest in this scheme provided he is between
18 to 60 years of age as on the date of submission of application. The applicant would also be expected
to complete the regular KYC formalities before opening the account.

3) What are the benefits of NPS?

 Voluntary ‐ Open to all Indian Citizens

 Simple ‐ Easy to operate
 Flexible ‐ Option for choosing Pension Funds
 Investment Option ‐ Choose between Equity / Fixed Income Instruments / Govt. securities
 Portable ‐ Can be operated from anywhere in the country
 Regulated ‐ Regulated by PFRDA, a statutory authority
 Cost ‐ Lowest fund cost
 Returns ‐ Market driven returns

4) What are the types of account under NPS?

Tier I and tier II are the two types of accounts available for investment in NPS.

 Tier‐I account: You shall contribute your savings for retirement into this non‐withdrawable
account.
 Tier‐II account: This is a voluntary savings facility. You will be free to withdraw your savings from
this account whenever you wish, subject to certain conditions.
However, a subscriber needs to have Tier I account before opening tier II account.

5) What are the differences between Tier I and Tier II accounts?

6) What are the tax benefits available under NPS?

Amounts allocated under the FBP plan towards NPS would be fully tax exempt.

7) What are the charges under NPS?

NPS offers an extremely low cost option for retirement planning. Because of such low charges, the
banks and other intermediaries do not promote the NPS scheme.

A 0.0009%* fee (based on assets under management) for managing your wealth, makes
pension funds under NPS perhaps the world’s lowest cost money managers.
Following are the summary of charges under NPS:

 If the subscriber contributes less than Rs. 6,000 in a year, then

a. He would have to bear a default penalty of Rs 100 per year of default and the account would
become dormant.
b. In order to reactivate the account, the subscriber would have to pay the minimum
contributions, along with penalty, due for the period of dormancy.
c. A dormant account shall be closed when the account value falls to zero.

 The fee structure may change as may be decided by PFRDA/NPS Trust from time to time.

8) Who manages the amounts contributed to NPS?

PFRDA has appointed six Pension Fund Managers (PFM) to manage the fund, and a subscriber has to
choose one with whom he wishes to place his money.

 Pension Fund Manager available are listed below in alphabetical order:

o ICICI Prudential Pension Funds Management Company Limited
o IDFC Pension Fund Management Company Limited
o Kotak Mahindra Pension Fund Limited
o Reliance Capital Pension Fund Limited
o SBI Pension Funds Private Limited
o UTI Retirement Solutions Limited

A subscriber has to compulsorily select one of these fund managers; otherwise the application will be
rejected. In case he is not satisfied with the performance of a fund manager, he has the option to switch
to another manager. However, this option can be utilized only once in a financial year.

9) Where do the funds get invested?

After selecting the fund manager, the subscriber needs to select any one of the two approaches
available to invest the money.

The asset classes under which the funds are invested are equity (E), fixed‐income instruments (C) or
government securities (G).

NPS offers the following two approaches:

1. Active choice‐ subscriber has an option to decide the % in various asset classes.

o A subscriber can invest up to 50% (max limit) of its pension wealth in equities and the
remaining either in fixed‐income instruments or government securities or both.
o Once the option is selected, the pension fund managers will manage your investment in
the said proportion.
o A subscriber has an option to change his allocation pattern for subsequent investments.

2. Auto choice‐lifecycle fund

o In case an individual does not want to choose the allocation pattern or in case he is not
aware which allocation pattern is right for him, he can choose auto choice option.
o If the subscriber does not select any option, by default auto choice will be selected.
o In this option, the investments are made in a lifecycle fund. The proportion of funds
across the above 3 asset classes will be determined by a pre‐defined portfolio based on age.
o When the subscriber is young, major portion of the investment will go to equities. As he
grows old, the exposure to equities will reduce and government securities will increase.

10) What are the risks to take note of?

1. There are no guarantees on investment. NPS is a defined contribution plan and the benefits
would depend upon the amounts of contributions invested and the investment growth up
to point of exit from NPS.
2. You may seek professional advice to assist you in planning your finances. However, this
would be your own decision and PFRDA would not be responsible for any consequences.
3. Past performance of the Fund Manager does not guarantee future performance of the
investment.
4. The name of the Fund does not in any manner indicate either the quality of the investment
scheme or its future prospects and returns.
5. All investments are subject to market risks and there is no assurance or guarantee that the
investment objectives shall be achieved.
6. Investment involves investment risks such as trading volumes, settlement risk, liquidity risk,
default risk including the possible loss of principal.
7. Value of your investment in the NPS may go up or down depending upon the forces and
factor affecting financial markets in general.
8. Tax laws may change, affecting the Return On Investment (ROI).

Please read through the detailed statement of other risks available on the PFRDA website.
11) How do I enroll myself for the NPS?

 As the first step, you need to allocate your NPS contribution amount under the FBP definition.
This can be done through MyPay FBP definition, available on https://MyPay.Cognizant.com.
 You have an option of setting up your NPS Contribution by reallocating the amounts that are
currently available under the FBP scheme – like Car Running, Medical, Special allowance etc.
 The amount so allocated will be fully tax exempt, subject to a maximum of 10% of your basic
salary.
 After the monthly payroll process, Cognizant will deposit the contribution amount to ICICI bank,
which has been appointed to serve all our associates. The details of amount deposited will also
be made available on the MyPay portal.

12) Is NPS in addition to PF and Superannuation or replaces them?

This is absolutely an additional option of retirement planning, over and above the existing options of
Superannuation and Provident Fund.

With this additional benefit being brought in, an associate can now contribute tax‐free for retirement
under the following schemes made available in the FBP platform:

 Compulsory ‐ Provident Fund – 12 % of basic

 Optional – Super Annuation – 15% of basic subject to a maximum of INR 8,333 p.m.
 Optional – National Pension Scheme – 10% of basic


13) Who is going to be the Point of contact for NPS?

We have appointed ICICI Bank as the Point of Presence (POP) for supporting Cognizant Associates. Once
an associate makes an allocation towards the NPS in the FBP platform, ICICI Bank will reach out to the
associate and get the documentation completed.

14) What kind of documentation is required to be completed?

ICICI Bank will work with the associates and take care of getting all the documentation completed –
including the KYC formalities.

While completing the documentation, the associate would be required to make the following choices.

 Choose the Pension Fund Manager. Options available are listed below in alphabetical order:
o ICICI Prudential Pension Funds Management Company Limited
o IDFC Pension Fund Management Company Limited
o Kotak Mahindra Pension Fund Limited
o Reliance Capital Pension Fund Limited
 o SBI Pension Funds Private Limited
o UTI Retirement Solutions Limited

 Choose the investment options

o Active choice ‐ Individual Funds ‐ You will have the option to actively decide as to how
your NPS pension wealth is to be invested in the following three options:
 Asset Class E ‐ investments in predominantly equity market instruments.
 Asset Class C‐ investments in fixed income instruments other than Government
securities.
 Asset Class G ‐ investments in Government securities.

o Auto choice ‐ Lifecycle Fund

 In this option, the investments will be made in a life‐cycle fund. Here, the
fraction of funds invested across three asset classes will be determined by a
predefined portfolio.
 For the age band of 18 to 36 years, the auto choice will entail investment of 50%
of pension wealth in “E” Class, 30% in “C” Class and 20% in “G” Class.
 From age 36 onwards, the weight in “E” and “C” asset class will decrease
annually and the weight in “G” class will increase annually till it reaches 10% in
“E”, 10% in “C” and 80% in “G” class at age 55.

15) Where can I get more details about the NPS?

Please go through the web site of PF Regulatory & Development Authority, which has comprehensive
information on the scheme and all the related components.
Website: http://www.pfrda.org.in/