Category Archives: NPS

Pension Bill adds teeth to PFRDA and NPS

The Pension Fund Regulatory and Development Authority Bill, 2011, was passed in the Lok Sabha on September 4, 2013.Retirement NPS

What is the new pension law?

The Bill seeks to give statutory powers to the interim authority set up in 2003. It also formally changes the name of the New Pension System to the National Pension System.

Here’s a backgrounder on the development of the NPS on Ajay Shah’s blog

In 1998, the Ministry of Social Justice and Empowerment setup `Project OASIS’, led by Surendra Dave, to engage in deep thinking about pension reforms. The report, which was submitted on 11 January 2000, envisaged an individual account defined-contribution system with central record keeping, and recruitment of fund managers by an auction which asked for the lowest fees+expenses.

This was a futuristic vision at the time, as a lot of the surrounding infrastructure had not fallen into place. In socialist India, it was quite novel to propose that households would build their own assets to take care of themselves in old age. However, the idea rapidly got widespread acceptance. More and more people started looking at the maladies around them and said that if only we had the NPS, these problems would not arise.

NPS was ahead of its time in being mistrustful of mutual funds and insurance companies. The great scandals of mutual funds and ULIPs lay in the future. Issues of consumer protection were not widely understood in 1998. But the key calls made in the NPS have proved to be the right ones: of delivering a solution that is good for the lifetime financial planning of households while giving financial firms wafer-thin margins. Apart from index funds, the NPS is essentially the only piece of Indian finance that is accessible to the average household that I trust. Thinking on consumer protection has progressed enormously in the following years. Yet, the NPS designed in 2000 fares well in satisfying the consumer protection principles of the draft Indian Financial Code of 2013.

All civil servants recruited after 1/1/2004 have been placed into the NPS, and by now this is shaping up to be substantial numbers. NPS has also started gradually going into the unorganised sector, with the assistance of co-contribution.

The wheels grind slow, but they grind true. The key implication of this decision by Parliament is that the NPS cannot be shut down by a future administration.


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Retirement NPS

Comparing Returns of the NPS (National Pension System)

Retirement NPSReturns of any financial products vary from year to year. It is easy to credit or discredit a product based on certain time frames. However we need to understand our needs, risk profile and suitability to select a financial product.


Reports in leading dailies present the returns of the National Pension system (NPS). In the ET, the following data was provided: The five-year returns on the NPS fund managed by UTI Retirement Solutions, assuming that the investor was following a systematic investment plan ( SIP), work out to 8.78% while the Employees Provident Fund has yielded 8.62% during the same period.

So, the returns are only marginally better than PPF.

Today’s TOI story presents another data set:

The National Pension System (NPS) is fetching near double-digit returns, which is at least a percentage point higher than what employees’ provident fund or public provident fund (PPF) offer. NPS is a voluntary longterm saving scheme for the private sector but mandatory for those who joined the government from 2004.

According to the latest data, in case of the private sector, the top performance was on offer for those who had a significant exposure to corporate bonds with all five fund managers — SBI, UTI, ICICI, Reliance and Kotak — offering between 13.4% and 15% over the last one year. Even since inception, the returns have been in the 8.89-11.94% range.

Corporate bonds are followed by government securities where the one-year return has been over 13.5% for all fund managers. For equity, where maximum exposure to shares is capped at 50%, returns over the last one year have ranged between 8.45% and 11.56%.

The Employees Provident Fund Organization has fixed the interest rate for 2012-13 at 8.5%, while the government has announced that PPF would fetch 8.7% this fiscal. UTI’s Retirement Plan, a mutual fund scheme that has been around since 1994, has offered returns of 10.5% since its launch, while one-year return is 8.62%.

The flip side is that unlike PPF or EPF, the retirement corpus is subject to tax, although the government has promised to amend the law. But if you choose to use the entire amount to buy annuity, you may avoid paying tax. Individuals, who are not part of the government set up, can invest anything upwards of Rs 6,000 a year under NPS and can withdraw 40% of the amount when they turn 60. The balance 60% has to be used to buy an annuity or a pension plan from an insurance company that will earn you a monthly income for the rest of your life.

When it comes to private sector, the scheme was opened in 2009 but has been slow to take off as fund managers have not pushed it too much given the low commission earned by them. As a result, a bulk of the funds, which added up to nearly Rs 29,000 crore at the end of March 2013, came from central and state government employees and NPS Lite, which is meant for low-income groups.

Here, the returns seem to be even better as equity exposure is only 15%. Latest available data shows that over the last one year, central government employees earned over 12%, and at least 9.67% since inception, depending on the fund manager. For state government employees, one-year returns range between 12.8% and 13.3%


Returns of any financial products vary from year to year. It is easy to credit or discredit a product based on certain time frames. However we need to understand our needs, risk profile and suitability to select a financial product.


Thanks for reading. Please check out our financial planning workshops and You can send us email for details about the workshops and book.