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New Pension Scheme (NPS); a shift from defined benefit Pension Scheme to defined contribution pension scheme

10.08.2018

Due to rising and unsustainable pension bill and competing claims on the fiscal, Government has made a conscious move to shift from the defined benefit Pension Scheme to defined contribution pension scheme i.e. NPS. National Pension System (NPS) is regulated by Pension Fund Regulatory and Development Authority (PFRDA) created by an Act of Parliament. The basic functions of the PFRDA are to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers.

The maximum age limit from 60 years to 65 years for joining NPS-All Citizen Model and Corporate Sector Model, vide “PFRDA (Exits and Withdrawals under the NPS) (Second Amendment) Regulations, 2017” dated 6th October, 2017 has been raised. PFRDA vide “PFRDA (Exits and Withdrawals under the NPS) (Third Amendment) Regulations, 2018” dated 2nd February, 2018 has facilitated easy exit & withdrawal in case of disability and incapacitation of the subscriber covered under NPS. Subscribers can withdraw up to 25% of their own contributions before attaining age of superannuation, subject to certain conditions. The pension wealth which accumulates over a period of time till retirement grows with a compounding effect. Contribution made to the NPS Tier-I account is eligible for tax deduction under the Income Tax Act, 1961.

However, transparency and Portability is ensured through online access of the pension account by the NPS subscribers, across all geographical locations and portability of employments. The contributory pension system was notified by the Government of India on 22nd December, 2003, now named the National Pension System (NPS) with effect from the 1st January, 2004. The NPS was subsequently extended to all citizens of the country w.e.f. 1st May, 2009 including self employed professionals and others in the unorganized sector on a voluntary basis.