The Hindu Business Line : Pension: Cabinet okays new regulatory framework proposal

The establishment of the statutory Pension Fund Regulatory and Development Authority is to promote old-age income security by establishing, regulating and developing pension funds under the new pension system, to protect the interests of subscribers to pension schemes and for related matters.

The new pension system is based on defined contributions, which will use the existing network of bank branches and post offices among others to collect contributions and interact with participants allowing transfer of the benefits in case of change of employment and offer a basket of pension choices.

The system is mandatory for new entrants to the Union Government except for those joining the armed forces. The monthly contribution is 10 per cent of the salary and DA to be paid by the employee and matched by the Union Government. However, there will be no contribution from the Government for individuals who are not Government employees.

The contributions and investment returns would be deposited in a non-withdrawable pension tier-I account. The existing provisions of defined benefit pension and GPF (general provident fund) is not available to the new recruits in the Union Government service.

In addition, each individual may also have a voluntary tier-II withdrawable account as an option. This option has been given as GPF has been withdrawn for new entrants to the Union Government.

The Government will make no contribution into this account although these assets would be managed through the same procedures. However, individuals would be free to withdraw part or all of the `second tier' of their money any time. This withdrawable account does not constitute pension investment, and would attract no special tax treatment, an official statement issued here states.

Individuals can normally exit at or after reaching the age of 60 for tier-I of the pension system. At the time of exiting, the individual would be mandatorily required to invest 40 per cent of pension wealth to purchase an annuity (from an IRDA-regulated life insurance company).

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 he/she would be free to utilise in any manner. Individuals would have the flexibility to exit the pension system before they turn 60. However, in this case, the mandatory annuitisation would be 80 per cent of the pension wealth.

The new NPS will not entail any guarantee of returns by the Government. However, this can be provided through market instruments.

The option of joining the new system would also be available to State Governments and as and when they decide to implement it. The new system would be capable of accommodating the new participants, the official statement adds.

Mandatory programmes under the Employee Provident Fund Organisation and other special provident funds would continue to operate as per the existing system. However, individuals under these programmes could voluntarily choose to additionally participate in this scheme.

The new system will also be available, on a voluntary basis, to all persons including self-employed professionals and others in the unorganised sector.

More Stories on : Financial Policy | Pension Plans

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Mark of honour

Cabinet nod for legal treaties with Singapore, S Africa

Pension: Cabinet okays new regulatory framework proposal

Cabinet nod for forming Financial Intelligence Unit

CCEA clears MSP operations for Maharashtra

BrahMos, Akash, Trishul to be test fired soon