NPS vs ULIP Pension Funds vs Mutual Fund Pension

comparison between the New pension scheme, Insurance Pension Plan (ULIP Based) and Mutual Fund Pension Plan.

NPS the cheaper and Tax Friendly Alternative:

	NPS	Insurance Plans (ULIP Based)	Mutual Fund Pension Plan
Investment amount per year	100000	100000	100000
Charges per Year (Initial Period)	925	13200	1250
Charges per year (5 Years to 10 years)	388	6000	1250
Charges per year (11 years to 15 years)	455	3000	1250
charges per year (16 years)	455	0	1250
Fund Management	0.0009 %	1.25 %	1.25 %
Age limit for annuity	60	Flexible	58
Assume CAGR	10 %	10%	10%
Maturity proceeds after 30 years	1.8 Crores	1.3 Crores	1.39 Crores
Lump sum (Max)	60 %	33%	0-100%
Pension Corpus (Min)	40%	67%	0-100%

 

NPS being the option with the lowest costs eats into the investments the least and hence delivers the highest returns.

 

The draft of the much awaited Direct Tax Code, which is expected to bring about a consolidation of the current tax laws and also effect some changes in the tax laws, has recently been made public.

 

With the drafts of the Direct Tax Code, there seems to be a decided push for making the NPS product more attractive to investors. The major change that the DTC will bring about in the retirement products scenario is that ULIPs will now also be taxed under the EET (Exempt-Exempt-Tax) Regime. This means that unlike in the current scenario, withdrawals from ULIPs will not be tax exempted. It has long been seen in the Indian investments market that the behavior of the retail investors is largely
guided by tax concerns. There is always a rush to invest in order to save on tax. ULIPs had an advantage over the NPS and mutual funds because it was taxed as EEE. This means that the withdrawal and is tax free too. Surely this is a major plus, but with the provisions in the new Direct Tax Code, the NPS will also be taxed in the EEE framework. This will invert the tax situation among retirement products with investment benefits.

NPS will be the only product to be taxed under EEE out of the three (Mutual Funds, ULIPs and NPS).

As a result, its major handicap will now be removed. The government has designed the NPS to benefit the investor to the maximum and the new taxation vis-a-vis the NPS will only add to the attractiveness of NPS.

Conclusion:NPS remains a very good product for its purpose and by aligning the distributors` interests with the PFMs would greatly help the NPS increase its strike rate. Re-iterating that NPS is a post-retirement safety tool,
it is a very effective tool that covers capital protection and also provides growth. With its lowest charges, it also is the cheapest way to get an exposure to the market. For the thousands and lakhs of employees in
the unorganized sector who have negligible or no post-retirement social security benefits, NPS is a boon.

More FAQ on New Pension Scheme

Who shall be responsible for protecting my interests as a NPS subscriber?A) The Pension Fund Regulatory and Development Authority, the regulator, will protect your interest.

What is the process for enrolling in NPS?A) Eligibility: 18-55 years of age. Upon registration, you will receive a permanent retirement account
number. Minimum annual contribution is Rs.6,000. The minimum number of instalments per year is
four. There is no upper limit on the contribution per instalment or on the number of instalments.

Would my personal information be confidential?A) Yes.

Under what circumstances can my account be closed before attaining retirement age?A) The account would be closed under following circumstances: death, account value reduces to zero and
change in citizenship status.

Can I exit before attaining the age of 60 years?A) Yes, provided you annuitise at least 80 percent of your pension corpus.

What if I do not exit the system at or before 70 years?A) In that case, on attaining 70 years, your account would be closed with the benefits transferred to you.

Can someone else make contributions on my behalf?A) Yes.

What would be the penalty in case I am unable to contribute the minimum annual
contribution?
A) You would have to bear a default penalty of Rs.100 per year of default and the account would become
dormant. In order to re-activate the account, pay the minimum contributions, along with penalty due. A
dormant account will be closed when the account value falls to zero.

Are there any investment returns guarantees?A) No. NPS is a defined contribution scheme and the benefits would depend upon the amounts
contributed and the investment growth up to the point of exit from NPS.

Will I be permitted to select more than one pension fund to manage my savings?A) You have to select only one fund. However, the regulator may allow the subscribers to choose more
than one fund in future.

What if I do not select any investment option?A) All your contributions would be channeled into a life-cycle fund.

What are the risks of investing in NPS?A) As with every investment, there is a degree of risk under NPS also. The value of your investment in NPS
may rise or fall.

I am 30 years old and would like to retire at 60. I want a pension of Rs.2,000 per month at
today's prices when I retire. How much do I need to contribute?A) You would need a pension wealth of Rs.319,000 (at today's prices) at the age of 60 to get a pension of
Rs.2,000 per month. To realise this, you would need to contribute approximately Rs.16,600 every year.

What will happen to my savings after I retire at 60?A) You will have to compulsorily invest a minimum of 40 percent of your pension wealth to purchase a life
annuity from an IRDA-regulated life insurer. The remaining pension can be withdrawn in lump sum or in
a phased manner.

What will happen to my savings if I decide to exit NPS before the age of 60?A) You would be required to invest at least 80 percent of your pension wealth to purchase a life annuity
from any IRDA-regulated life insurer. The remaining 20 percent may be withdrawn as a lump sum.

Will the annuity also provide for a family (survivor) pension?A) Yes, you will have an option of selecting an annuity which will pay a survivor pension to your spouse.

On my death, can my nominee continue to operate the account in my name?A) No, the balance standing to the subscriber's account may be transferred to the nominee's account after
following regulator KYC procedure.

Can I opt not to exit in case of disability?A) Yes.

Is the scheme tax free?
Long term savings have three stages: contribution, accumulation and withdrawal. The NPS was devised
when the government was planning to move all long term savings to a tax regime called exempt-exempt-
taxed (EET), standing for exempt at the time of contribution, exempt during the period when the
investment accumulates and taxed at the time of withdrawal. So, NPS comes under the tax regime EET.
However, the government could not muster the political courage to change the taxation regime of EET on
several saving schemes. So, the pension fund regulator has taken up with the finance ministry the need to
remove the asymmetry in tax treatment between the NPS and other schemes such as the PPF. In any case,
the amount spent on buying an annuity would be exempt from tax.

Clarification on Queries

Clarifications  given by PTC Mysore:

1. Is age proof compulsory for opening a NPS account ?

Age proof is compulsory.

2. What is the Procedure to close a NPS account. ?
 Tier I account is an non withdrawal account.  It can be closed only on maturity at the age of 60 years.  For Tier II NPS account holder has to make an withdraw transaction and submit a application UOS - S12 for withdraw.

3. if an nps acnt has been canvassed by the mktg executive, is the presence of the customer at the counter necessary??
 Concerned POP - SP has to decide. 

4. While registering the NPS application form (UOS N2)to PTC Mysore,we ver not entered the bank account details as per the instruction from CO. Now we received email from PTC Mysore saying that they rejected our application because of not filling the bank account details. we ve not recieved the MICR code yet. please suggest a solution

Bank details is mandatory.  If your office is having account with nationalized banks it will be having MICR code.  Please check with your Banker.

5. Do both Anexxure S1 and UOS-S10 required for opening a NPS accont ?



The details of application with nos and its usage has been provided in SOP available in ftp://ptcinfo.org and also in CRA site. Please go through it.

6. Where did the HOs get the email Ids related  NPS.

All the HOs were provided with indiapost.gov.in email IDs for which CRA will send the information

Revised Instructions and Action Points for NPS

Guidelines issued by Directorate regarding the operation of New Pension Scheme Account in Head Post Offices.

Download


1. NPS Action Points Download


2. POP-SP Regn No and CFC Codes - Download

3. List of HOs not submitted the POP_SP Regn Application Form physically to PTC Mysore.

157	KERALA		Alathur Mbr H.O
158	KERALA		Aluva H.O
159	KERALA		Attingal H.O
160	KERALA		Chalakudi H.O
161	KERALA		Ernakulam H.O
162	KERALA		Kannur H.O
163	KERALA		Karunagappaly H.O
164	KERALA		Kottayam H.O
165	KERALA		Kunnamkulam H.O
166	KERALA		Muvattupuzha H.O
167	KERALA		Ottapalam H.O
168	KERALA		Palai H.O
169	KERALA		Perumbavoor H.O
170	KERALA		Taliparamba H.O
171	KERALA		Thrissur H.O
172	KERALA		Tirur(kerala) H.O
173	KERALA		Vaikom H.O
174	KERALA		Wadakanchery-TC H.O

4. List of HOs not configured correctly in MM Point of Sale.

66	KERALA	IRINJALAKUDA	CHALAKUDI
67	KERALA	KOTTAYAM	PALA HO
68	KERALA	KOTTAYAM	VAIKOM HO
69	KERALA	MAVELIKARA	MAVELIKARA HO
70	KERALA	PATHANAMTHITTA	PANDALAM

Guidelines Regarding Operation of NPS accounts in PO

Initial Procedures:
Subscriber should submit the following forms with Appropriate documents.
For Tire I account opening:
1. UOS-S1 (If the subscriber requres one copy of this form, then he may fill another UOS-S1 form Or make a photostat copy of it and it should be attested by the post office and return back to the customer.)
2. The NCIS form should be properly Filled.
3. Customer should bring 2 set of KYC documents (ID proof and AddressProof).
4. While filling the UOS-S1 form page 3 and page 4 can be omitted.
5. Customer has to sign in page 5 of UOS-S1.
6. Post office has to fill the details like registration no, kyc compliance etc in page 5 & 6.

For Tire II Opening:
1. Bank details are mandatory.
2. Customer should submit a cancelled cheque of the Bank.
3. Can not use POSB account for Tier II Activation.
4. If already got the PRAN card, it should be brought for activating tire II account.

Processing of Forms:
1. Post Office should send the Forms on daily basis to Nearest CRA-FC.
2  A.Maximum of 50 forms in a lot.
3. It should be accompanied by a covering letter.
4. Covering letter should be serially numbered and continous.
5. NCIS form and one set of KYC documment should be kept in Post office.
5. Receipt should be printed in duplicate.
6. One receipt should be given to the Customer and the other one should be pasted in NCIS.
7. If the customer requests for one copy of UOS-S1 form,  give a fotostat copy of that form.
8. PRAN form is not Required, UOS-S1 is sufficient.

Download Covering Letter here

Verification of Forms:

Regarding Filling Scheme info in Application Form

From CRA.NSDL Website:
As per the present guidelines of Pension Fund Regulatory and Development Authority(PFRDA),contribution towards pension will be invested in the default Schemes termed Scheme of various Pension Fund Managers in the proportion of 85% in fixed income instruments and 15% in equity and equity related instruments. Hence, in the application form for PRAN,the details of the schemes need not be mentioned.

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