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Introduction to NPS

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Introduction to NPS Powered By Docstoc
					Pension Fund Regulatory and Development Authority
                New Delhi, India
AGENDA


  1   Background

  2   Need for Pension Reform- NPS Introduction

  3   Features of NPS

  4   Charge Structure and Exit

  5   Current status of NPS

                                                  2
DEMOGRAPHICS
   Nearly 80 million elderly today; expected to be
    more than double in 25 years.
 Life expectancy of over 17 years at age 60. This
  will only improve in future.
 A worker will have to save enough to last for
  nearly 2 decades after he/ she stops working.
                                                    Population Growth
            2030                                                                                                 17.5

            2016                                                                  11.3

            2001                                               7.66
    Years




            1991                                     5.64

            1981                             4.17

            1971                  2.85

            1961           2.13                                                                                          3
                   0   2                 4           6         8         10        12        14        16        18
                                                         Population of Aged in Crore Source: Visaria, IEG 1998 and Census 2001
PENSION COVERAGE- HARD FACTS
    State/ Central                        2.80%

Government Employees                          10.00%                  Covered under EPFO
                                                                         and other PFs


                               87.20%
Not Covered under any
   pension scheme

                  Civil Servants   Large Private Firms   Informal Sector



    At present over 87% workers not having any pension
     cover
    Amongst them some are above poverty line today but
     likely to slip below it on retirement
                                                                                           4
    Traditional family support for old age declining: 60% of
     households already nuclear
GOVERNMENT PENSION
PAYMENTS


                                                                         63183
                                                                         crores




                  GoI pension expenditure has increased 4 times in the last 8 years




                   15905
                   crores




                                                                BE: Budgeted
                                                                Expenditure
                                                                                      5
Source: Department of Expenditure, Ministry of Finance
1Crore= 10 million
TRENDS IN PENSION SECTOR

1.   Change of focus from defined benefit to defined
     contribution

2.   Co-contribution to create dedicated pension funds which
     are then invested in the capital markets in a
     professional manner

3.   Investments are being diversified among various
     assets like bonds, equity, government securities and
     fixed income

4.   Focus    by    regulators   on    monitoring      and     6

     recordkeeping
NEED FOR PENSION REFORM IN INDIA

   Open ended liability - Rising longevity- 76 million above
    age 60 years in 2001 which was 55 million in 1991-
    showing a rate of growth of 3.8% per annum in10 years

   Coverage- 87% of population uncovered under formal
    pension system

   Fragmented regulatory framework

   Lack of individual choice and portability

   Higher administrative costs impacting the real rate of
    returns                                                     7
PENSION REFORM INITIATIVE-NPS (CHRONOLOGY)

   February 2003, announcement of National Pension
    System (NPS), mandatory for new recruits will be
    introduced, based on defined contribution

   December 2004, an ordinance promulgated setting
    up a statutory Pension Fund Regulatory and
    Development Authority

   From   2004-2008,    NPS    contributions   held   in
    GoI public account at fixed return of 8%
                                                            8
CHRONOLOGY OF EVENTS-NPS (CONTD…)

   April 2008 GoI transfers NPS contributions (Rs.
    11.77 Billion) hitherto held in the public account to
    PFRDA      for   investment   by    professional   fund
    managers

   May 2009 NPS extended to all citizens of India

   December 2009 launch of Tier-II account

   September        2010   launch     of   NPS-Lite    for
    economically disadvantaged section of society
                                                              9
NPS FEATURES
   Tier-I and Tier-II Accounts for Subscribers
       Tier-I: Long term investments with restricted
        withdrawals to build a viable corpus for purchase of an
        annuity
       Tier II: Short term investments as a platform for Tier-I
        with easy liquidity
 PORTABLE – Can be operated from anywhere in the
  country and also if subscriber changes job or city
 REGULATED       – Regulated by PFRDA, with
  transparent investment norms and regular
  monitoring and performance review of fund
  managers by NPS Trust
 FLEXIBLE – Choice of selecting investment plan
                                                     10

  and fund manger at Employer or Subscriber Level
NPS-FEATURES (CONTD…)

   ONLINE ACCESS – Access to account online 24x7 for
    Nodal Offices and Subscribers individually

   PHASED WITHDRAWAL- Withdrawal from 60-70
    years to cover market risks

   ARCHITECTURE -Completely unbundled architecture
    for subscriber protection



                                                    11
ISSUES UNDER CONSIDERATION
   EEE Tax Regime
       Issue: NPS compares unfavorably with other long term saving instruments
       Proposed: To create an EEE regime for NPS which will flow into DTC as well

   Portability from Superannuation funds to NPS
       Issue: Porting balances from superannuation funds to NPS is taxable
       Proposed: Allow seamless portability of funds from superannuation to
        individual NPS so as to encourage corporate for offering NPS to employees

   Amendment to sec 80 CCD of Income tax act
       Issue: Unlike Superannuation funds where Employer/Employee can contribute
        15% tax free, Income tax rule limits it to 10% for NPS
       Proposed: Allow tax exemption on Employers/Employees contribution to NPS
        upto 15% so as to be par with other superannuation funds.                   12
NPS ARCHITECTURE

                                13
                            PFRDA
Oversight
Mechanism
                                                    NPS Trust


                Fund Flow
                                       Trustee Bank
                                           BOI                   Custodian
                                                                  (SHCIL)



 Nodal Office                                 NAV          PFM
                              CRA
                            (NSDL)

                 Online
 Subscriber                                                      Information Flow
                                                                           13
                                                                 Funds Flow
                                     Annuity Service
                                       Providers
CHARGE STRUCTURE-CRA




                       14
CHARGE STRUCTURE – OTHER
INTERMEDIARIES
Intermediary   Charge head                 Service charges               Method       of
                                                                         Deduction
POP Charges    Subscriber Registration               Rs. 100                Upfront
               Initial & Subsequent           0.25% of Contribution
               Contributions                 Amount subject to Rs 20
                                                                            Upfront
                                             (Minimum) & Rs 25000
                                                  (Maximum)
               Transactions other than               Rs. 20
                                                                            Upfront
               contribution
Trustee Bank   Per transaction emanating              Rs. 15             Through NAV
               from a non-RBI location                                    deduction
Custodian      Asset Servicing charges      0.0075% p.a for Electronic
(On      asset                              segment & 0.05% p.a. for     Through NAV
                                                Physical segment          deduction
value       in
custody)
PFM charges Investment Management                  0.0009% p.a.          Through NAV
               Fee                                                        deduction


                                                                                           15
 EXIT FROM NPS
Criteria                    Benefit
At any point in time before The Subscriber would be required to invest at least 80% of
60 years of Age             the pension wealth to purchase a life annuity from any IRDA
                            – regulated life insurance company, which is appointed by
                            PFRDA. Rest 20% of the pension wealth may be withdrawn
                            as lump sum.
On attaining the Age of 60 At exit the Subscriber would be required to invest minimum
years and up to 70 years    40 percent of his/her accumulated savings (pension wealth)
of age                      to purchase a life annuity from any IRDA-regulated life
                            insurance company, which is appointed by PFRDA..
                            The Subscriber may choose to purchase an annuity for an
                            amount greater than 40 percent. The remaining pension
                            wealth can either be withdrawn in a lump sum on attaining
                            the age of 60 or in a phased manner, between age 60 and
                            70, at the option of the subscriber.
Death due to any cause      In such an unfortunate event, option will be available to the
                            nominee to receive 100% of the NPS pension wealth in lump
                            sum. However, if the nominee wishes to continue with the
                            NPS, he/she shall have to subscribe to NPS individually
                                                                                        16
                            after following due KYC procedure.
CURRENT STATUS- NPS
 Sector                        Number of           AUM
                               Subscribers         (Rs Crores)
 Central Government            9,29,264            11,129

 State Government              11,36,461           3382

 Private Sector                71,481              224

 NPS Lite                      8,89,212            129

 Total                         30,26,418           14,864

 *Data as of 17th March,2012

  27 State Governments/UTs has adopted NPS for their employees

  25 corporate registered in NPS

  41 entities including Public Sector & Private Sector Banks acting   17
    as Point of Presence under NPS (around 16000 POP-SPs)
SWAVALAMBAN SCHEME

 A grant of Rs 1000 per year to those NPS accounts

  opened in FY 2010-11 & FY 2011-12

   Subscriber belonging to unorganised sector

   Contribute min Rs 1000 and max Rs 12000 during the
    year

 Scheme to run for another 5 years

 Relaxed Exit Norms for Swavalamban Subscribers

   Exit age relaxed to 50 years instead of 60 years,

    provided 20 years of tenure in scheme is completed   18
AGGREGATOR UNDER NPS LITE- REVENUE
MODEL

 Aggregator under NPS Lite: An agency which takes on

  the NPS related responsibility on behalf of its
  constituents mass
                                   Subscriber Contributing (>Rs 1000) per Year


                                 Below 1     1 Lakh to   3 Lakhs to    Above 5
                                  Lakh        3 Lakhs      5 Lakhs      Lakhs



                Defined as per
      Fixed                      Rs.100       Rs.100       Rs.100       Rs.100
                 Regulation



                Volume Driven
     Variable                     Rs.20       Rs. 30        Rs.40        Rs.50
                  Incentive

                                                                                 19
                        THANK YOU




Contact:
Kamal Chaudhry
Chief General Manager
Pension Fund Regulatory and Development Authority
                                                    20
CHOICE OF FUND MANAGER

   ICICI Prudential Pension Funds Management
    Company Limited

   IDFC Pension Fund Management Company Limited

   Kotak Mahindra Pension Fund Limited

   Reliance Capital Pension Fund Limited

   SBI Pension Funds Private Limited

   UTI Retirement Solutions Limited

                                                   21
CHOICE OF INVESTEMENT TYPE
   THREE ASSET CLASSES
       Asset class E (equity market instruments)
       Asset class G (Government Securities)
       Asset class C (credit risk bearing fixed income
        instruments)
 SUBSCRIBER FREE TO ALLOCATE HIS CORPUS
  WITHIN LAID DOWN LIMITS UNDER ACTIVE
  CHOICE
 RISK PROFILE BASED AUTO CHOICE OPTION

Unorganized Sector
Equity                              - up to 50 %          22
Corporate bonds                     - up to 100 %
Government securities               - up to 100%
AUTO: TABLE FOR LIFE CYCLE FUND
     Age          Asset Class E   Asset Class C    Asset Class G
Up to 35 years        50%             30%              20%
  36 years            48%             29%              23%
  37 years            46%             28%              26%
  38 years            44%             27%              29%
  39 years            42%             26%              32%
  40 years            40%             25%              35%
  41 years            38%             24%              38%
  The Scheme endorse the subscriber investments and
  42 years            36%             23%              41%
                      34%             22%
  43 years its risk exposure through auto balance.
  manages                                              44%
  44 years            32%             21%              47%
  45 years            30%             20%              50%
  46 years            28%             19%              53%
  47 years            26%             18%              56%
  48 years            24%             17%              59%
  49 years            22%             16%              62%
  50 years            20%             15%              65%
  51 years            18%             14%              68%
  52 years            16%             13%              71%         23
  53 years            14%             12%              74%
  54 years            12%             11%              77%
  55 years            10%             10%              80%

				
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posted:11/27/2012
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