CA Kapil Goel
The National Pension System (NPS) reflects Government’s new effort to find a suitable & sustainable solution to the problem of providing adequate retirement benefits to the people at large. As a first step towards initiating this, Government of India moved from a defined benefit pension to a defined contribution based pension system by making it mandatory for its new recruits (except armed forces) with effect from January 1st, 2004. Since April 1st, 2008, the pension contributions of Central Government employees covered by the NPS are being invested by professional Pension Fund Managers in line with investment guidelines of Government applicable to non-Government Provident Funds.
Twenty eight States/Union Territory Governments have notified the NPS for their new employees. Some states have already signed agreements with the intermediaries of the NPS architecture appointed by PFRDA for carrying forward the implementation of the NPS.
NPS has been made available to every citizen from 1st May, 2009 on a voluntary basis. The NPS architecture is transparent and will be web-enabled. It would allow a subscriber to monitor his/her investments and returns under NPS, the choice of Pension Fund Manager and the investment option would also be decided by the subscriber. The design allows the subscriber to switch his/her investment options as well as pension funds. The facility for seamless portability and switch between Portfolio Fund Managers is designed to enable subscribers to maintain a single pension account throughout their saving period (i.e. till 60 years age).
PFRDA has set up a Trust under the Indian Trusts Act, 1882 to oversee the functions of the Portfolio Fund Managers. The NPS Trust is composed of members representing diverse fields and brings wide range of talent to the regulatory framework.
The NPS has been designed to enable the subscriber to make optimum decisions regarding his/her future and provide for his/her old-age through systemic savings from the day he/she starts his/her employment. It seeks to inculcate the habit of saving for retirement amongst the citizens.
The NPS has been making progress in terms of investment options and showcasing performance superior to the traditional EPF and PPF investments.
What is more interesting is that the NPS funds fared quite well when compared with mutual fund category averages. The table shows the average returns of mutual funds in similar categories for the year ending March 2013. The recent press release by PFRDA for NPS (private) for non-government employees showed sound double-digit returns by NPS funds. This is far higher than the under 9 per cent returns that EPF or PPF delivered (see table).
|Returns of private NPS (%)*||Avg. returns of mutual funds (%)**|
|*weighted average return between April 2012 and March 2013|
|**category average of funds for the above period|
|Scheme E: equity; Scheme C: corporate bonds; Scheme G: government securities|