Frequently Asked Questions on New Pension Scheme (NPS) Questions

Whether a retiring Government servant is entitled for leave encashment after retirement under the NPS?
The benefit of encashment of leave salary is not a part of the retirement benefits admissible under Central Civil Services (Pension) Rules, 1972. It is payable in terms of CCS (Leave) Rules which will continue to be applicable to the government servants who join the government service on after 1-1-2004. Therefore, the benefit of encashment of leave salary payable to the governments/to their families on account of retirement/death will be admissible.

Why is it mandatory to use 40% of pension wealth to purchase the annuity at the time of the exit (i.e. after the age of 60 years) from NPS?
This provision has been made in the New Pension Scheme with an intention that the retired government servants should get regular monthly income during their retired life.

Whether any minimum age or minimum service is required to quit from Tier-I?
Exit from Tier-I can only take place when an individual leaves Government service.

Whether Dearness Pay is counted as basic pay for recovery of 10% for Tier-I?
As per the New Pension Scheme, the total Dearness Allowance is to be taken into account for working out the contributions to Tier-I. Subsequently, a part of the “Dearness Allowance” has been treated as Dearness Pay. Therefore, this should also be reckoned for the purpose of contributions.

Whether contribution towards Tier-I from arrears of DA is to be deducted?
Yes. Since the contribution is to be worked out at 10% of (Pay+ DP+DA), it needs to be revised whenever there is any change in these elements

Who will calculate the interest PAO or CPAO?
The PAO should calculate the interest.

What happens if an employee gets transferred during the month? Which office will make deduction of Contribution?
As in the case of other recoveries, the recovery of contributions towards New Pension Scheme for the full month (both individual and government) will be made by the office who will draw salary for the maximum period.

Whether NPA payable to medical officers will count towards ‘Pay’ for the purpose of working out contributions to NPS?
Yes. Ministry of Health & Family Welfare has clarified vide their O.M. no. A45012/11/97-CHS.V dated 7-4-98 that the Non-Practising Allowance shall count as ‘pay’ for all service benefits. Therefore, this will be taken into account for working out the contribution towards the New Pension Scheme.

Whether a government servant who was already in service prior to 1.1.2004, if appointed in a different post under the Government of India, will be governed by the CCS (Pension) Rules or NPS?
In cases where Government servants apply for posts in the same or other departments and on selection they are asked to render technical resignation, the past services are counted towards pension under CCS (Pension) Rules, 1972. Since the Government servant had originally joined government service prior to 1-1-2004, he should be covered under the CCS (Pension) Rules, 1972.

Tips to select policies that can suit you under NPS

The new pension scheme is available for both government employees as well as other citizens of the country. There are seven pension fund houses authorised by the pension regulatory body, PFRDA, to manage the fund.

All these seven fund houses provide one scheme for state government employees and one for central government staff.

It is mandatory for these employees to invest in one of the schemes offered by these pension fund houses. Rest of the citizens can select any of the schemes offered by six pension fund houses.

Currently, LIC has not got the mandate to offer a pension fund to this category. Each of the six pension fund houses offers six schemes, three under each of tier I and tier II accounts.

Tier I is a mandatory nonwithdrawal pension account while tier II is a voluntary savings account that allows withdrawals as well.

These include Scheme E that invests in equity, Scheme G that invests in government bonds and Scheme C that invests in corporate bonds. Investors have an option to choose from either auto or active investment strategy. Once the strategy is selected, he can choose the pension fund house.

In case of the auto strategy, fund is allocated under the schemes in a particular proportion. This proportion changes with the age of the person. So, at an early stage of life, more investment will be in equity and as the age increases, the proportion in Scheme C and Scheme G increases.

Under the active approach, one can decide on the proportion in which the sum can be invested in E, G, and C schemes. While one can choose to invest entire pension wealth in C or G asset classes, only a maximum of 50% can be invested in E.

A combination of all the three can be opted for medium risk and return approach. This is true for both the tier I and tier II accounts while the government employees do not have much choice.

However, a state and central government employee gets to make a choice on the investment strategy and schemes for their tier II account. NPS has approximately Rs30 crore of asset under management (AUM) in all. Tier I comprises almost 85-90% of this while the rest is in tier II account.

SBI Pension Fund House

SBI Pension Fund house comprises almost 65% of the total AUM under NPS. According to the PFRDA guidelines, fund houses need to invest proceeds under Scheme E in an index fund. An index fund replicates the movements of a stock market index such as Nifty, the Sensex, BSE 500 and others.

SBI replicates Nifty 50 under Scheme E for both Tier I and Tier II. The return from this scheme has not been very encouraging compared to its other peers. Since inception, it has got a 21.1% absolute return.

While Nifty has given a return of 14.5% in the past six months, SBI Scheme E has only managed to earn 12.5%. This implies that an investment of Rs100 six months ago in Scheme E would grow to Rs112.5 as of today. The same if invested in the index directly would have been Rs114.5. SBI pension fund has given best returns in the industry for Scheme G and Scheme C.

Since its inception, it has fetched 19.2% and 15.8% absolute returns in tier I C and tier I G scheme, respectively, and 10.5% and 11.3% returns in tier II C and tier II G. However, if we see data for the past six months, then UTI pension fund has performed better in Scheme G.

UTI Pension Fund

UTI Pension fund has almost 10% of the total AUM in its tier I account while the corpus in its tier II account is merely a few lakhs of rupees. UTI also replicated Nifty 50 for both tier I and tier II Scheme E. The returns of UTI equity scheme are the best among its peers. It has yielded absolute returns of 42.3%. This means an investment of Rs100 in this scheme in May 2009 would have jumped to Rs142.2 today.

It has also outperformed Nifty in the past six months. Scheme C of UTI has underperformed considerably. A major reason for this could be low asset under management in this scheme. Scheme G also has not performed well since its beginning. The absolute returns have been only 10.2% and 8.9% in tier I C and tier I G scheme, respectively, which are half that of returns given by SBI's respective schemes. In the past six months, however, UTI's scheme G has outpaced SBI's G scheme.

Our View: NPS is still at an early stage and hence, AUM is extremely low. This makes things difficult for fund managers. Low AUM is a major reason for the subdued performance of all the schemes. Things are expected to change for the better as AUM grows.

However, those who have already invested or are interested to invest in NPS can opt for Scheme G and Scheme C of SBI Pension fund for conservative returns; also, a little amount can be parked in equity scheme E. Those having high risk return appetite may invest 50% in UTI scheme E and the rest in UTI Scheme G and Scheme C.

Source: Economic Times