National Pension System Reforms: All You Need to Know

Introduction

RBI has recently introduced reforms in the National Pension System (NPS) to include Non Resident Indians (NRIs) under FEMA Act, 1999, financial inclusion of Atal Pension Yojana to include unorganized work force under the pension bracket etc


Nodal Agencies

  • RBI releases guidelines and introduces reforms
  • Pension Fund Regulatory and Development Authority (PFRDA) administers the NPS and operates it to beneficiaries through normal banking systems

About NPS

  • NPS was constituted on 1st January 2004 to bring pension reforms
  • NPS aim is to develop the habit of savings among the Indian citizens for retirement
  • A citizen must contribute continuously till the age of 60 years
  • Minimum contribution to Tier I account of NPS is Rs. 6000
  • Maximum Equity exposure only through index funds as prescribed by RBI to NPS funds is 50 %
  • This feature makes NPS market linked scheme with attractive returns in the long run
  • At the end of 60 years, an individual can claim 60 % of the funds accumulated 
  • In case of early exits, 80 % of the corpus accumulated can be withdrawn
  • Partial withdrawal of 25 % of the corpus allowed after ten years
  • NRIs can invest in NPS through NRO (Non Resident Ordinary rupee) or NRE (Non resident External Rupee) account or through any local means
  • NPS introduced the reforms in pension system and included NRIs in the pension funds recently
  • NPS opened up the pension sector to common public through Atal Pension Yojana, the flagship product of current government
  • APY has received an overwhelming response from the common people

NPS Reforms

  • In 2009, NPS in addition to covering all government servants extended the pension facility to all Indian citizens including unorganized work force and NRIs
  • The decision of providing pensions to unorganized work force is optional and voluntary while for government servants, it is mandatory
  • Pensions form the attractive aspect of the government jobs for years and will continue to be in future
  • Reforms are made in pensions in certain states that no pension is available for government servants after 2002 instead they take home a hefty salary but still reforms are on the anvil
  • From 2009, NPS is available to all citizens and NRIs of India 
  • NRI have the great attraction of no restrictions to join NPS

Exception

  • Armed forces are not covered under NPS

Implication

  • NPS new reforms will see huge remittances from abroad
  • Increase of funds in the NPS
  • Contribution from government servants, Indian citizens (domestic – unorganized labor and NRIs)
  • NPS will provide old age income to Indians living abroad
  • NPS enhances financial inclusion within India by providing pension to unorganized labor
  • Atal Pension Yojana saw mass enrollments increasing the funds of NPS
  • APY also has inculcated the savings habit among the Indian Citizens
  • NPS has directly contributed to the financial inclusion measure through its reforms and serves the interests of development of India as a whole

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