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PFRDA to ensure NPS benefit isn’t misused

PFRDA to ensure NPS benefit isn’t misused
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First Published: Tue, Apr 06 2010. 01 15 AM IST
Updated: Tue, May 11 2010. 12 26 PM IST
To give New Pension System (NPS) a push among workers in the unorganized sector, the government had announced in the Union Budget that it will contribute Rs1,000 per year for the next three years for every investment between Rs1,000 and Rs12,000 made by an unorganized sector employee.
But this initiative, called “Swavalamban”, has left the pension regulator, Pension Fund Regulatory and Development Authority (PFRDA), grappling with ways to ensure that the product is not misused and plans to come up with a guideline in this regard soon.
Says Rani S. Nair, executive director, PFRDA: “We don’t want people coming in to invest only for the purpose of this free contribution. We want people to consider NPS as a serious pension option and, therefore, we are working on guidelines that will ensure some kind of a lock in.”
This benefit is applicable only to those who open a new pension account with NPS in FY11.
You can invest in the NPS through two ways. The tier I account, the main pension account of NPS, matures when you turn 60. It would give you a lump sum of up to 60% of the total accumulated value in the account. You can take the rest only through an annuity product from a life insurance company, which gives periodic payments. However, if you want to withdraw before the tenure, you will get only 20% of the corpus as lump sum. The tier II account gives more flexibility to investors in terms of premature withdrawals. However, you can’t have a tier II account without having the main pension account.
Says Nair: “People may invest at the age of 57 years only to earn Rs3,000 free. Or people may invest and withdraw early after making some free money. We want to dissuade such practice, specially among the poor for whom NPS is a good pension vehicle.”
But how does the regulator plan to dissuade premature exits? Answers Nair: “We are working towards making the lock-in more stringent for people benefiting from Swavalamban. We will come out with the guidelines in this regard within this month.”
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First Published: Tue, Apr 06 2010. 01 15 AM IST
More Topics: Pension | PFRDA | NPS | Investment | Money Matters |