There are very limited options for investors in retirement plans - Hemant Contractor, Chairman of PFRDA

In a candid chat with ET, Hemant Contractor, Chairman of PFRDA, shares his views on retirement plans available in the market.

Hemant Contractor, Chairman of PFRDA

To meet their retirement needs, investors have various products to choose from. What makes the National Pension System (NPS) stand out and what are its unique propositions? Who should ideally invest in it?

Yes, it is a fact that investors have various products to save for retirement, but most of these products are plain vanilla investment product where the investor has very limited choice. National Pension System (NPS) provides the platform to the subscriber to plan for his retirement in a way the subscriber decides. NPS provides choice of investment, choice of pension fund and also mandates utilization of certain percentage of the accumulated corpus to be utilized for purchase of annuity to provide regular monthly income throughout the life in the old age. For investors who are not very much financially literate, the default choice of pension fund, investment option and annuity makes their life simpler. NPS as a product is being directly promoted and regulated by a regulator gives an additional advantage to NPS, as we have been making all efforts to make it simpler for the subscriber and the same time allowing more avenues to the pension fund to invest in the high yielding niche products in the market to maximize the returns for the subscribers. The Tax benefit on Employer Contribution without any monetary limit, exclusive tax benefits on investment upto Rs. 50000/- u/s 80CCD (1B), low cost structure, professionally managed investment, etc. have made NPS a preferred avenue for retirement planning.

What is the process of opening an online NPS account? How does one make online contributions towards it?

PFRDA takes various initiatives from time to time in order to simplify and improve the operational issues in National Pension System (NPS). In this regard, recently an online portal for registration and contribution under NPS (eNPS) has been made available in the NPS Trust website. Using the facilities available in the eNPS portal, a subscriber can register under NPS, generate a Permanent Retirement Account Number (PRAN) under All Citizens of India sector and contribute to his/her Permanent Retirement Account. Further, the subscribers who have already been registered under NPS and have active PRAN can make contributions through eNPS.

A subscriber can register under NPS using Aadhaar or using PAN (where KYC verification is done by Bank). The complete information about eNPS is available in PFRDA / NPS Trust website.
The various advantages/benefits to the subscribers under eNPS are as under:

1. As eNPS is accessible through internet from anywhere. Subscriber can register under NPS from a convenient place and is not required to visit to the POP office physically for NPS enrollment.
2. PRAN get allotment immediately and online KYC verification is done by Bank.
3. Online contribution facility helps in reducing the TAT for investment of funds
4. Subscriber can contribute multiple times based on his/her convenience
5. Errors arising out of illegible handwriting is completely eliminated

Is there any important change or changes that the Pension Fund Regulatory and Development Authority (PFRDA) is thinking of to make online investing simpler?

PFRDA, from time to time, has taken initiatives to make the platform for investing under NPS user friendly and cost effective. Very recently, feature of e-sign facility has been introduced in which if the subscribers opt for e-sign feature while filling the registration form online, then there is no need to send physical copy of the form to CRA. It is an ongoing process and based on the requirements and subscribers requests/ suggestions we will keep on improving and modifying the system.

1.The detailed process of online registration and contribution may please be referred at Annexure I.


Online registration and contribution process under NPS

Any individual can open NPS account through eNPS as well as contribute online. The process is explained below:


Option 1 - Registration using Aadhaar 
I.You must have an 'Aadhaar number' (with a mobile number registered with Aadhaar)
II.Your KYC in NPS will be done using Aadhaar through One Time Password (OTP) authentication
III.OTP for the purpose of authentication will be sent to the mobile number registered with the Aadhaar
IV.Your demographic details and photo will be fetched from Aadhaar database and populated in online form
V.You need to fill up all the mandatory details online
VI.You would be required to upload your scanned signature (in *.jpeg/*.jpg format having file size between 4kb - 12kb) as part of the registration process
VII.In case, you wish to replace the photo obtained from Aadhaar, you may upload a scanned photograph
VIII.You will be routed to a payment gateway for making the payment towards your NPS account from Debit/ Credit card or Internet Banking

Option 2 - Registration using PAN (KYC verification by Bank)
I.You must have a 'Permanent Account Number' (PAN) &
II.Bank account with the empanelled Bank for KYC verification for subscriber registration through eNPS
III.Your KYC verification will be done by the Bank selected by you during the registration process. Name and address provided during registration should match with bank records for KYC verification. If the detail don't match, the request is liable for rejection. In case of rejection of KYC by the selected Bank, applicant is requested to contact the Bank
IV.You need to fill up all the mandatory details online
V.You need to upload your scanned photograph and signature in *.jpeg/*.jpg format having file size between 4kb - 12kb
VI.You will be routed to a payment gateway for making the payment towards your NPS account from Internet Banking

After Permanent Retirement Account Number (PRAN) is allotted, subscriber can use one of the following options for submission of Registration forms: 


For Tier I PRANs generated through Aadhaar, you have option to eSign the document by following the below mentioned steps: 
I.Select 'eSign' option in the eSign / Print & Courier page
II.OTP for the purpose of authentication will be sent to your mobile number registered with the Aadhaar
III.After Authentication of Aadhaar, Registration form will be successfully eSigned
IV.Once a document is eSigned, you need not send the physical copy of form to CRA
V.eSign charges is ₹ 5 plus service tax

b)Print and Courier

I.Select 'Print & Courier' option in the eSign / Print & Courier page
II.You need to take a printout of the form, paste your photograph (please do not sign across the photograph) & affix signature
III.You should sign on the block provided for signature
IV.The photograph should not be stapled or clipped to the form
V.The form should be sent within 90 days from the date of allotment of PRAN to CRA or else the PRAN will be 'frozen' temporarily

The process to be followed for online contribution is as follows:
All existing subscribers (registered through both online and offline mode) can contribute in Tier I & Tier II account using ‘eNPS’. To contribute online, you need to:-
Have an active Tier I / Tier II account
Authenticate your PRAN using the OTP sent to your registered mobile number
Pay through your Debit / Credit card or use Internet Banking option.
POP Service Charges will be applicable on the contribution amount @ 0.05% (subject to minimum of ₹ 5 and maximum of ₹ 5,000 per transaction). This service charges will not be applicable for subscribers registered in eNPS through Aadhaar.

How does investing in the NPS benefit a salaried employee, keeping in mind the tax considerations?

The employee is eligible for the following tax benefits on contribution to NPS:
i.The tax deduction on account of contribution by employee to NPS can be claimed up to 10% of salary (Basic + DA) subject to overall ceiling of Rs. 1.50 lacs u/s 80 CCE of Income Tax Act. 1961.
ii.An additional tax deduction on investment up to Rs. 50,000 in NPS is available under section 80CCD (1B) of the Income Tax Act. This is over and above the limit of deduction available under section 80CCD(1). This is an exclusive tax deduction available for investment in NPS.
iii.The employee is also allowed deduction on employer’s contribution upto 10 % of salary (Basic + DA), without any monetary limit under Section 80CCD(2) of the Income Tax Act, 1961.

What were the major structural changes that the NPS witnessed in its features in 2016?

Some of the recent initiatives are:
I.We have introduced a separate class of asset “A”- Alternative Investment Scheme with a cap of 5%. The subscriber can invest upto 5% in this scheme. This investment option may be suitable for those subscribers who are willing to take more risk for better returns. The investments under this scheme will be in commercial mortgage based securities or residential mortgage based securities issued by REITs,asset backed securities, infrastructure investment trusts and AIF.
II.Introduction of two new life cycle funds under Auto Choice: Two new Life cycle funds have been introduced. In the Aggressive Life Cycle funds (LC75), equity exposure starts with 75% and gradually decreases every year as per the age of the subscriber. In the new Conservative Life Cycle (LC25), the equity exposure is restricted to 25% and decreases gradually. These funds have been introduced in addition to the existing Moderate Life Cycle Fund (Equity Exposure-50%). These choices in the private sector will help the subscribers to select the life cycle fund as per their risk appetite.
III.The subscriber will now have the option to change his investment choice or asset classes twice in a financial year. The Pension Fund change option will remain once in a financial year.
IV.Minimum contribution requirement in a financial year has been reduced from Rs. 6000/- to Rs. 1000/- for NPS- Private Sector.
V.Move towards paperless account opening: Account opened through Aadhaar option on eNPS platform have the option of eSign. The subscriber opting for eSign is not required to submit the physical application form. The Points-of-Presence have also been allowed to integrate eSign in their system for dispensing with the submission of physical application form.
VI.Option to the subscribers for executing online withdrawal request from Tier II: Now the subscriber can request for withdrawal online by login to the CRA system.
VII.NPS Mobile App: This app will help the subscriber to keep him updated about his NPS account and he can also request for services through this app.

As far as the cost of investing in the NPS is concerned, what is the PFRDA doing to keep it competitive, keeping in mind the interest of the pension fund managers?
a.Currently Investment management Fee charged under various schemes of NPS are 0.0102% pa of AUM (for CG and SG schemes and APY) and 0.01%pa. of AUM for NPS Pvt. Sector schemes
b.Hitherto Investment Management Fee (IMF) charged by pension fund for fund management activity was determined through bidding process wherein matching L1 was required
c.However, recently, Authority had issued RFP dated 17.09.2016 for selection of pension fund to manage contributions received under various schemes under NPS (for Pvt. Sector) which is under process. Wherein a concept of “Differential fee structure” within the prescribed ceiling has been introduced. This will enable the pension funds to quote a fee that is as per their business model, size and Sponsor’s vision. This is a step towards balancing the stability and viability of the pension system and subscribers, as the pension fund cannot quote beyond a ceiling

In the 2016 Budget, Finance Minister Arun Jaitley had made withdrawals from the NPS on maturity tax-free up to 40 per cent of the total corpus, while the balance corpus of 60 per cent continues to be taxable. What are your recommendation and expectation from the 2017 Budget?

The statement is not factually correct. Under NPS, the subscriber is mandatorily required to utilize 40% of the total accumulated corpus for purchase of annuity. The amount utilized for purchase of annuity is not treated as income and hence no tax on the same. In the Budget 2016, the 40% of the total accumulated corpus has been tax exempted. So, effectively, there is no tax on 80% of the accumulated corpus. Only the remaining 20% of the total corpus is presently taxable. However, if the subscriber utilizes 60% of the corpus for purchase of annuity, then the total corpus becomes tax free. Further, at the time of Exit, subscriber has the option to defer his withdrawal upto the age of 70. With the deferment of the withdrawal, and withdrawing it in the later years, the subscriber can reduce his tax liability as in most of the cases; the marginal tax of the subscriber will reduce due to low earning post retirement. 
PFRDA has requested the Government to consider making the total lump sum withdrawal tax exempt so as to bring it in parity to Provident Fund. The similar tax treatment will make switching of subscriber from EPF to NPS practicable and implementable. 



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