NPS Lite: Ensuring old age income for all

If you save towards pension today, you will have a monthly income when you stop working. Even Rs. 100 per month, saved from the age of 30 years onwards would yield an estimated corpus of Rs.1,49,035 @ 8% rate of return, at the age of 60 years.

If rate of return is more, the corpus will grow more. The earlier you join, the returns on your savings will be higher. NPS Lite aims at ensuring a pension of at least Rs. 1,000 per month based on your contributions and government support under Swavalamban Scheme.

What is NPS-Lite?

NPS was initially for government employees, and was later extended to all citizens of India. Recognising the need to provide income security to marginal income earners and to people from economically disadvantaged sections of society, a scheme has been launched exclusively for such sections of society. NPS-Lite is a scheme of the government of India and PFRDA (Pension Fund Regulatory and Development).

What is Swavalamban?

As part of the government’s initiative towards ‘Financial Inclusion’, the Finance Minister announced a new scheme called Swavalamban to encourage subscribers to save for their old age, where the government will also contribute Rs. 1,000 per year to the pension account NPS Lite—making pension possible for the economically disadvantaged.

Features of Swavalamban / NPS-Lite 

• Each subscriber will get an identity card with his photograph, name & signature, known as PRAN Card. This card establishes his/her membership of the Swavalamban / NPS-Lite scheme.
• Each subscriber can contribute as little as Rs. 100 per month. There is no fixed monthly contribution. Contribution can be made, whenever the subscriber is comfortable and has the necessary disposable income.
• To avail the benefit of Rs. 1,000 in each of these years–2011-12, 2012-13 & 2013-14—the subscriber has to deposit a minimum of Rs. 1,000 and a maximum of Rs. 12,000 during each of these years.
• Money will be collected by organisations, known as aggregators, who have been approved by PFRDA.
• The list of aggregators, who have been approved for collection of contributions of Swavalamban / NPS-Lite scheme, will be displayed on the PFRDA website. The aggregator will collect the money, and issue a receipt to the subscriber.
• The aggregator will deposit the collections (by uploading on the system) in a designated NPS-Lite Bank Account.
• At present, Swavalamban / NPS-Lite scheme is the extension of the scheme, which is available to the government servants, i.e., 85% of the money will be invested in debt and 15% will be invested in equity as per the government guidelines.
• A subscriber can choose any of the following fund managers: SBI, UTI, ICICI, Reliance, Kotak and IDFC. Alternatively, a subscriber can choose 3 PFMs (pension fund managers) viz. SBI, UTI and LIC. The money will be bifurcated amongst the fund managers at a ratio determined by PFRDA.
• Once a year, a statement of account of the entire transaction and the market value of the corpus will be sent to the aggregator for distribution to the subscribers.

What happens at the time of retirement?

At the age of 60, the subscriber can withdraw 60% of the pension wealth in lump sum and a minimum 40% of the pension wealth to be annuitised. Exit before age 60 years requires a minimum annutisation of 80% of the pension wealth.

If the annuitised pension wealth does not yield an annuity of Rs. 1,000 per month, the percentage of pension wealth to be annuitised would be increase so that the pension amount becomes Rs. 1,000 per month, failing which the entire pension wealth would be subject to annutisation. This minimum pension sealing may be revised from time to time.

In case of death of the subscriber, the entire money can be withdrawn by his / her heirs immediately, without annuitizing any portion of the corpus.

Costs of the Scheme: The Swavalamban / NPS-Lite account provides security and gives complete details of all transactions to the subscriber. Each subscriber will have a separate Individual Retirement Account. This account will show the investments made and the NAV of the corpus. At the time of joining, the subscriber will pay a one-time cost of Rs. 35 for obtaining a PRAN Card.

Every year, Rs. 70 per annum will be deducted from the NAV of the NPS account for meeting the cost of recordkeeping.

Subscriber Support

There is a Central Grievance Management System (CGMS) under which any subscriber can either log his / her complaint through his / her aggregator, or can send a written complaint to PFRDA or CRA. This complaint will be monitored by PFRDA and CRA.

The subscriber can also access his aggregator, and ask to see his account on the computer to see that his contributions have been properly recorded.

Swavalamban gives you Rs. 1,000 per year for this and next three years to help you start your pension corpus. The Finance Minister has announced a new scheme Swavalamban in the Budget 2010. To avail of Swavalamban benefit, you need to invest between Rs. 1000-12,000 per year for each of these years.

Source: PFRDA

Read more:

A simple but effective way to plan your retirement

NPS: Building substantial corpus for your retirement

FAQs on National Pension System