The National Pension System (NPS) is a voluntary pension plan that allows investors the option to choose between equity and debt exposure using a single investing instrument. An investor may select up to 75% equity exposure in the NPS programme and may withdraw up to 60% of the maturity amount at retirement. The remaining 40% will be spent on annuities, which will be used to fund the monthly pension payments sent to NPS account holders.

The NPS rules have recently undergone some adjustments thanks to the pension regulator Pension Fund Regulatory and Development Authority (PFRDA).

NPS Subscribes Can Now Change Asset Allocation Four Times A Year

National Pension System (NPS) can now adjust their asset allocation up to four times each year. During a press conference on June 14, 2022, PFRDA chairperson Supratim Bandyopadhyay claimed that this was done in response to pleas from numerous NPS customers who desired more adjustments in a year. If they have chosen active choice asset allocation, NPS users are currently able to modify their investment pattern twice every fiscal year. If they have chosen active choice asset allocation, NPS users are now able to modify their investment pattern twice every financial year.

How the NPS Scheme Change Works

Scheme preference change for NPS is processed in T+4 day. T being the date of authorisation. Redemption (withdrawal of units) of the existing scheme happens on T+1. 

Latest available NAV will be considered for units redemption.  On T+4, units as per the revised ‘scheme preference’ will be credited in the subscriber’s account

If scheme preference change is executed after the end of previous business day and before the beginning of next business day then the T day is considered for redemption and the request will be settled in T+3 working days

Meanwhile, the total number of subscribers for National Pension Scheme (NPS) and Atal Pension Yojana (APY) stood at 5.33 crore as of June 4, PFRDA Chairperson Supratim Bandyopadhyay recently said.

As of June 4, 2022, the Asset Under Management (AUM) under NPS and APY was at ₹7,39,393 crore.

The number of subscribers in the category of central government employees of NPS was 22.98 lakh and AUM at ₹21,876 crore. Total subscribers in state government employee category of NPS was 56.46 lakh and AUM at ₹3,69,837 crore in the period.

More Pension Fund Managers are needed

Subscribers to the NPS must pick between seven different pension fund managers to manage their money. To give more options, the PFRDA intends to add more fund managers. Axis Pension Fund, Max Life, and Tata have all been granted in-principle permission to administer pension funds, increasing the total number of pension fund managers to 10.

Tier 1 and Tier 2 Under NPS

There are two types of NPS accounts — Tier 1 and Tier 2. Tier 1 account is mainly meant for retirement savings where one has to make a minimum contribution of Rs 500 while opening the account. It also entails tax benefits under Section 80CCD (1B) of the Income Tax Act, 1961.

Under the NPS Tier 1, a person is allowed to withdraw 60 per cent of the accumulated corpus contributed during his/ her working years at the time of retirement, which is tax-free. The remaining 40 per cent is converted into an annuatised product.

NPS Tier 2 is an open-access account with a minimum investment of Rs 1,000, where the subscriber is free to withdraw his/ her entire corpus at any point in time. No tax benefits are available in this account.

NPS has a Risk Factor

Subscribers to NPS will soon be able to view the risk profile of any NPS programme managed by a pension fund manager. Mutual fund firms have previously adopted this strategy. This risk-o-meter shows them how much risk the scheme’s portfolio can withstand. Subscribers would benefit from an analogous statistic in NPS to help them make better selections.

The Risk Rating System

The Pension Fund Regulatory and Development Authority of India (PFRDA) rules have outlined six levels of risk Low Risk, Low to Moderate Risk, Moderate Risk, Moderately High Risk, High Risk, and Very High Risk.

Schemes of the National Pension System (NPS) are becoming an important asset for investment for long-term saving of the individuals and help in creating a desired corpus for pension, if invested in an informed manner. The investment under various asset classes of the Schemes of Pension Funds would involve different level of risks for subscribers and, therefore, it is desired that the adequate disclosure of the risks involved in various schemes of NPS are made available for awareness of the subscribers, the PFRDA has said in the circular.

NPS Subscribers can Change Investment Choice 4 Times a Year

According to reports, the four-change facility for NPS customers has already gone online and will be accessible from the current fiscal year.

The new PFRDA action has no impact on NPS members who have chosen automatic asset allocation, as their investments are rebalanced based on their age and asset preferences.

The PFRDA has taken many steps to make the NPS a more feature-rich retirement option. Subscribers to the National Pension System (NPS) can choose from four asset classes: stock, government securities, corporate bonds, and alternative assets.

The total assets under management under the NPS and Atal Pension Yojana was at 7.39 lakh crore as on June 4, 2022, with 533.64 lakh members.

NPS accounts for nearly a quarter of the projected 35 lakh crore in pension funds. Subscribers to the National Pension System (NPS) must now pick one of the seven pension fund managers from which to invest. PFRDA, on the other hand, intends to provide investors greater options in the future. Three new pension fund managers Axis Pension Fund, Max Life, and Tata have gained in-principle authorisation to handle pension funds, bringing the total number of pension fund managers to ten.

5 Recent Regulations of NPS

1. Trail Commission Payment through PoP

The Pension Fund Regulatory and Development Authority (PFRDA) has permitted trail commission payment through POPs for NPS account holders in order to support the Points of Presence (POPs). The pension fund regulator made it clear, nevertheless, that trail commission on NPS contributions made using D-Remit will be comparable to eNPS (another online contribution method) by subscribers who were on-boarded by the relevant PoPs. Beginning on September 1, 2022, the regulation will be in force.

The trail commission to PoPs for D-Remit Contributions of the related Subscribers must be @ 0.20 percent of the contribution value (minimum 15 and maximum 10,000), comparable to eNPS. By unit deduction on a regular basis, the appropriate fees would be collected.

2. Digital Life Certificate Submission

The IRDAI has requested that insurance providers simplify the life certificate filing procedure. It has requested that insurance providers use Aadhaar-based authentication or life certificate verification.

3. Tier-2 Account Holders are exempt from Credit Card Payments

The PFRDA has decided to cease allowing tier-2 accounts to pay subscriptions for NPS contributions. The PFRDA publicly announced its choice in a notification dated August 3, 2022. Therefore, following this, NPS account holders will no longer be able to pay for tier-2 accounts using credit cards.

4. NPS e-Nomination Flow

The PFRDA has modified the e-nomination procedure for workers of the public and private sectors. The modification will take effect on October 1, 2022. The nodal office will have the choice to approve or reject the NPS account holder’s e-nomination request in accordance with the new NPS e-nomination procedure flow. The e-nomination request will be approved in the Central Recordkeeping Agencies (CRA) system if the nodal office does not take any action against it after 30 days of its allocation.

5. No separate form will be needed for Annuity purchases at Maturity

This is incorrect. Annuity purchases will not call for a separate form. The IRDAI has decided to simplify the onboarding procedure for NPS subscribers. The suggestion to purchase an annuity from a life insurance company will now be considered when exiting the NPS plan.

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