Govt sop for pension plan only on tier-I accounts

The Pension Fund Regulatory and Development Authority (PFRDA) has decided that contributions to the non-withdrawable portion of a New 
Pension System (NPS) account would only be taken into account for determining whether the subscriber would be eligible for the government’s co-contribution of Rs 1,000 per account as has been announced by the finance minister Pranab Mukherjee in the budget.

“We will be taking into account only the amount invested in the tier-I account for determining whether the subscriber is eligible for the government’s contribution,” Rani S Nair, executive director, PFRDA, told FC. The pension regulator is working on the details of the scheme for co-contribution by the government.

The NPS allows subscribers to open two simultaneous accounts (tier-I and tier-II). While stringent restrictions are imposed on withdrawing money out of tier-I accounts, the tier-II account allows unlimited withdrawals and functions in a manner similar to a savings account in a bank.

However, the pension regulator has mandated that a subscriber must have an ‘active’ tier-I account with the required minimum mandated deposit of Rs 6,000 a year to be allowed to maintain a parallel tier-II account. The NPS offers the option to all citizens to take benefit of a defined contribution scheme where the subscriber’s money is handled by pension fund managers as per investment norms laid down by PFRDA.

In his budget speech, the finance minister, had said that the move for co-contribution by the government was being offered to encourage more people to save under the NPS for their old age income security. “To encourage the people from the unorganised sector to voluntarily save for their retirement and to lower their cost of operations of the NPS for such subscribers, the government will contribute Rs 1,000 per yea to each NPS account opened in the year 2010-11. This initiative, ‘swavalamban’ will be available for people who join NPS, with a minimum contribution of Rs 1,000 and a maximum contribution of Rs 12,000 per annum during the financial year 2010-11,” Mukherjee had said in his budget speech.

Nair said that the Rs 12,000 outer cap imposed by the finance minister for attracting the government’s help has been set to ensure that those who can afford to set aside enough money for their retirement purposes do not take benefit of the scheme. “The high income, high net worth people would not need the government’s contribution. Moreover, there are many other avenues for them to invest, such as other pension plans, for their old age income security. The present, the scheme is mainly aimed at those who do not have enough disposable income to save for their old age,” she said.

Financial Chronicle, New Delhi, 11-03-2010.