The erstwhile New Pension System, which is now called the National Pension System (NPS), has tweaked some of its features. Here’s a rundown.
While the broad structure of the tier I account remains the same, under the new fund offer for the NPS the minimum number of contribution is one against four earlier. However, the minimum contribution of Rs 500 per instalment and Rs 6,000 per annum still holds good. The tier I account, also known as the pension account, locks in your money till you hit 60 years of age. This pension account needs you to contribute regularly every year in the funds of your choice. Currently there are three funds to choose from: equity fund in which you can invest up to 50% in equity market instruments, fixed income instruments other than government securities and government securities.
Even in the tier II account, which does not lock in your money and works more like a savings account, the minimum number of contribution has been reduced to one. You need to maintain a minimum balance of Rs 2,000 per annum in the tier II account.
There is a penalty of Rs 100 for not maintaining the minimum balance or for not making the minimum number of contributions in both the accounts.
The pension fund regulator, Pension Funds Regulatory and Development Authority (PFRDA), has increased the incentive structure for the points of presence (PoPs) for the fiscal year 2010-2011. PoPs will now get Rs 150 per subscription. The limit was Rs 50 earlier. Even as the distributors get Rs 100 extra, this hike does not significantly impact your returns.
The primary reason for the increase in incentive structure is to promote NPS which is still struggling to find its feet. Other than the Union and state government employees, only about 10,000 subscribers have joined the scheme so far.
In the pipeline
In order to promote the scheme, PFRDA is contemplating a complete overhaul of the cost structure under the NPS. Measures such as hiking the fund management charge and incentivizing the fund managers to market the scheme are being discussed.