New Pension Scheme (NPS)

Some Important Questions and Answers:

1. What is the New Pension System
(NPS)?

The NPS is a new contributory pension scheme introduced by the Central Government for its own new employees. Under the new pension system, each new central government employee will open a personal retirement account on joining service. Every month, and till the employee retires or leaves government service, a part of the employee’s salary will be transferred into this account. When the person retires, he will be able to use these savings to take care of the needs and expenses of his family during old age.

2. Who is covered by the NPS?You are covered by the NPS if

1. You joined central government service on or after 01 January 2004, and
2. You are an employee of a Central (Civil) Ministry or Departments, or
3. You are an employee of a non-civil Ministry or Department including Railways, Posts, Telecommunication or Armed Forces (Civil), or
4. You are an employee of an Autonomous Body, Grant-in-Aid Institution, Union Territory or any other undertaking whose employees are eligible to a pension from the Consolidated Fund of India.

3. How does the NPS work?
When you join Government service, you will be allotted a unique Personal Pension Account Number (PPAN). This unique account number will remain the same for the rest of your life. You will be able to use this account and this unique PPAN from any location and also if you change your job. The PPAN will provide you with two personal accounts:

1. A mandatory Tier-I pension account, and
2. A voluntary Tier-II savings account.

4. What is the difference between Tier-I and Tier-II accounts?

1. Tier-I account: You will have to contribute 10% of your basic+DA+DP into your Tier-I (pension) account on a mandatory basis every month. You will not be allowed to withdraw your savings from this account till you retire at age 60. Your monthly contributions and your savings in this account, subject to a ceiling to be decided by the government, will be exempt from income tax. These savings will only be taxed when you withdraw them at retirement.
2. Tier-II account: This is simply a voluntary savings facility for you. Your contributions and savings in this account will not enjoy any tax advantages. But you will be free to withdraw your savings from this account whenever you wish.

5. Can I contribute more than 10 into my Tier-I account?

Yes. You will be permitted to contribute more than the mandated 10% of Basic+DA+DP into your Tier-I account – subject to any ceiling that may be decided by the Government.

6. Will the Government also contribute more than 10 into my Tier-I account?

No. The contribution of the Government will be limited to 10% of your basic+DA+DP.

7. Will the government make any contributions to my Tier-II account?

No. The government will not make any contribution to your Tier-II account.

8. Where will my savings be invested?

Each PFM will offer you a limited number of simple, standard schemes. You will be free to choose any of the following schemes for investing your savings:
Scheme A This scheme will invest mainly in Government bonds
Scheme B This scheme will invest mainly in corporate bonds and partly in equity and government bonds
Scheme C This scheme will invest mainly in equity and partly in government bonds and corporate bonds.

9. I am covered by the NPS. Do the old Pension Rules apply to me?
No. The Central Civil Service Pension Rules (1972) do not apply to you. You are covered only by the New Pension System Rules framed for the NPS.

10. I am covered by the NPS. Can I contribute to the GPF?
No. The General Provident Fund (Central Service) Rules, 1960 also do not apply to you. You will not be permitted to contribute towards GPF.

11. Am covered by the NPS. Am I eligible to Gratuity?

No. You will not be eligible to Gratuity.

12. What will happen to my savings if I decide to retire before age 60?

You will be required to use 80% of your savings in your Tier-I account to purchase the annuity. You will be able to withdraw the balance 20% of your savings as a lumpsum.

13. What will happen to my savings in the Tier-I account when I retire?

You will be able to withdraw 60% of your savings as a lumpsum when you retire. You will be required to use the balance 40% of your savings to purchase an annuity scheme from a life insurance company of your choice. The life insurance company will pay you a monthly pension for the rest of your life.

14. What if I die or become permanently disabled during my service?

The Government is yet to issue any guidelines on this.

15. Will I have to pay any fees or charges under NPS?

You will have to pay a fee to the Central Recordkeeping Agency (CRA) which will maintain your accounts and also to the PFM(s) which manage your savings. These charges will be deducted from your savings on a periodic basis. The fees and charges by the CRA and PFMs will be regulated by the PFRDA.

16. What will happen to my contributions to my Tier-I account?

Your monthly contributions, and the matching contributions by the Government into your Tier-I account, will be transferred by the Government in your name to a Pension Fund Manager (PFM). The PFM will invest your contributions on your behalf. In this way, your savings will earn an interest and grow over time.