The document discusses the National Pension System (NPS) introduced by the Indian government. It provides details on key aspects of NPS including: - NPS allows individuals to contribute during employment and withdraw funds after retirement at age 60. Contributions are invested based on the individual's preferences. - There are two tiers - Tier 1 is mandatory and contributions cannot be withdrawn before retirement. Tier 2 is optional and allows premature withdrawals. - Investment options fall into different risk classes. Individuals must choose a Pension Fund Manager to manage their investments. - NPS aims to provide pension coverage to a large unorganized workforce but so far has achieved low penetration with only around 200,000

1. Presented By
Divas Panjwani ,FIII
NATIONAL INSURANCE
ACADEMY, PUNE

2. • NPS is intended to resemble the 401k plan offered for
employees in the US , but not in totality. NPS follows
an EET (exempt-exempt-taxable) structure, similar to
its global peer, but the withdrawal amount after the
age of 60 can’t remain invested nor can be withdrawn
fully.
• Another important difference is that premature
withdrawal is subject to a few life-changing
situations.

3. • The NPS was introduced by the government last year to give people a way
to get a pension during their old age. Employees of the government sector
already get a pension, so this scheme was introduced as a social security
measure that enables people from the unorganized sector to draw a pension
as well.
• The working mechanism is quite simple – you contribute a certain sum
every month during your working years, which is then invested according
to your preference. You can then withdraw the money when you retire,
which is currently set at 60 years old.
• Investment is according to investor preference, It mean that there are a
couple of different options that need to select from. These options pertain
to investor’s preference on withdrawal, and asset allocation.

4. Government of India had initiated Contributory Pension Scheme for the employees' w.e.f
01 Jan 2004. The scheme is applicable for all government employees except the three
defense forces. The existing provisions of Defined Benefit Pension and GPF would not be
available to new Government servants joining Government service on or after 01 Jan 2004.
 The new pension scheme will work on defined contribution basis and will have two
tiers, Tier-I and Tier-II. Both tier-I (Pension Account) and Tier II (Savings Account) will be
pure retirement savings products, the only distinction being Tier-I is a non with draw able
account while Tier-II is a with draw able account to meet financial contingencies.
Contribution to Tier-I is mandatory for all Government servants joining Government service
on or after 01 Jan 2004, whereas Tier-II will be optional and at the discretion of Government
servants.
In order to implement the Scheme, there will be a Central Record Keeping Agency and
several Pension Fund Managers to offer three categories of Schemes to Government
servants, viz. options A, B and C based on the ratio of investment in fixed income
instruments and equities. An independent Pension Fund Regulatory and Development
Authority (PFRDA) will regulate and develop the pension market.

5. Tier-I account
a) In Tier-I, Government servants will have to make a contribution of 10% of his basic pay (i.e pay in pay band plus
grade pay) plus Dearness Allowance, which will be deducted from his salary every month by the Pay and Account
Offices (PAO)
concerned. An equal contribution will be made by the Government. Tier-I contributions (and the investment returns)
will be kept in a non-with drawable Pension Tier-I Account.
b) A Government servant can exit at or after the age of 60 years from the Tier-I of the scheme. At exit, it would be
mandatory for him to invest 40% of pension wealth to purchase an annuity (from an Insurance Regulatory and
Development Authority (IRDA) regulated Life Insurance Company), which will provide pension for the lifetime of
the employee and his dependent parents/spouse. In the case of Government servants who leave the Scheme before
attaining the age of 60, the mandatory annuitization would be 80% of the pension
wealth.
Tier-II account.
a) No additional Central Record Keeping Agency (CRA) charges will be levied for account opening and annual
maintenance in respect of Tier-II. However, Central Record Keeping Agency (CRA) will charge separately for each
transaction in Tier II, the charges being identical to the transaction charge structure in Tier- I.
b) No limits on number of withdrawals.
c) Facility for separate nomination and scheme preference in Tier-II.
(d) The subscriber would have the same choice of Pension Fund Managers (PFM) and schemes as in the case of Tier
I account in the unorganized sector.
(e) Contributions can be made through any Point Of Presence (POP)
(f) Facility of one-way transfer of savings form Tier II to Tier-I.
(g) Bank details will be mandatory for opening a Tier II account.
(h) An active Tier I account will be a pre-requisite for opening of a Tier II
account.

6. Tier 1 Tier 2
Registration Through PoP Through PoP
Contribution Minimum Total Contribution of Rs 6000
per annum
Minimum Rs 500 per contribution
Minimum 4 contributions per year
Min Rs 1000 contribution at time of account
opening
Min Rs 250 per subsequent contributions
Min Balance of Rs 2000 at the end of
Financial Year (April-March)
Schemes Available Active choice ( choose from)-3 Asset Classes
(Equity, Corporate Bonds, Government Bonds ) &
6 Pension Fund Managers
Auto choice-Asset allocation based on age
Active choice ( choose from)-3 Asset Classes
(Equity, Corporate Bonds, Government Bonds )
& 6 Pension Fund Managers (see list)
Auto choice-Asset allocation based on age
Age at Entry Minimum age 18 years and maximum age 55
years
Same as Tier I
Norms for
Withdrawal
Can be withdrawn at age 60, 40% of accumulated
amount to be used to buy life annuities from an
IRDA approved Insurance Company, A phased
withdrawal is also allowed but the lump sum
balance should be withdrawn before age 70
For exiting before 60 years age, only 20% of the
lump sum to be cash withdrawal,80% to be used to
buy life annuities from an IRDA approved
Insurance Company
On death before age 60, the nominee receives
lump sum
No limits can be withdrawn anytime

7. There is an Active Choice option, and an Auto Choice option. If you select Auto Choice then your money is
invested in a certain percentage in the various classes based on your age.
In the Active Choice you can select how much of your money will be invested in the different classes with a
cap of 50% in Class E.
Now, there are pension funds that will manage money, and in either of these options investor have to select
the fund manager who will manage your fund. So even if investor select the Auto Choice, he still have to
tell them which fund manager you want to manage your money.
Here are the three investment classes:
Class Risk Profile Description
G Ultra Safe Will only invest in Central and State
government bonds.
C Safe Fixed income securities of entities other
than the government
E Medium Investment in equity related products like
index funds that replicate the Sensex.
However, equity investment will be
restricted to 50% of the portfolio.

8. Who are the Fund Managers ?
There will be 6 Fund houses appointed by
Government to manage the funds
under NPS . You can choose any one
of them to be your Fund Managers .
They are :
1. SBI Pension Funds Private Limited.
2. UTI Retirement Solutions Limited.
3. ICICI Prudential Pension Funds
Management Company Limited.
4. Religare Pension Fund Limited.
5. IDFC Pension Funds Management
Company Limited.
6. Kotak Mahindra Pension Fund
Limited.
Who are Point of Presence ?
The following entities have been approved by PFRDA for
appointment as Points of Presence (POPs) under the New
Pension System for all citizens other than Government
employees covered under NPS .
1. Allahabad Bank
2. Axis Bank Ltd
3. Bajaj Allianz General Insurance Co Ltd
4. Central Bank of India
5. Citibank N.A
6. Computer Age Management Services Private Limited
7. ICICI Bank Ltd
8. IDBI Bank Ltd
9. IL&FS Securities Services Ltd
10. Kotak Mahindra Bank Limited
11. LIC of India
12. Oriental Bank of Commerce
13. Reliance Capital Ltd
14. State Bank of Bikaner & Jaipur
15. State Bank of Hyderabad
16. State Bank of India
17. State Bank of Indore
18. State Bank of Mysore
19. State Bank of Patiala
20. State Bank of Travancore
21. The South Indian Bank Ltd
22. Union Bank of India
23. UTI Asset Management Company Ltd

9. Operational factors
Tax saving investment limit under section 80C and 80CCF.
Investment under section 80CCD (Investment from the
employer required)
Tax benefits under Section 80C and 80CCD available only in
Tier-I accounts.
Taxability factors
Change in DTC regime from April, 2012.
Benefits to the employers.

10. Cost factors:
 Low commission on the product
 Revision of charges in January 2012
Introduction of NPS Lite:
To extend the coverage of NPS to the weaker and economically disadvantaged
sections of the society with their limited investment potential, PFRDA has
launched NPS- Lite which specifically targets the marginal investors and promotes
small savings during their productive life. It aims at building up a corpus sufficient
enough to buy an annuity for their old age.
 Focused
 Voluntary
 Simple
 Safe
 Economical
 Portable

11. FACTOR
 NPS launched on may 1st 2009 with aim of reaching out to 270 million people, or
90 per cent of the workforce.
 But reached to around 2 lac customers out of 2840 lac target customer as per march
2nd 2013. i.e. penetration is 0.070 %.
1. REASON BEHIND LOW PENETRATION IS POOR P. & D. STRATEGY
 Due to lack of participation by service providers.
 There is no direct incentive for people selling the scheme.
 Another major problem with distribution system was reach or approach up to the
needy customers.
So, in order to increase effectiveness of marketing and distribution particularly the
POP performance we can implement two idea:
1. CORDINATION OF NPS-LITE AND OTHER SCHEMES BEING OPERATED
IN RURAL AREAS.
2. INCREASING THE INCENTIVES FOR POP’s

12. FACTOR
2.FLEXIBILITY FACTOR
 The NPS is meant for retirement and financial security; it does not permit flexible
withdrawals
 As a result, individuals will need to use alternate mechanism to fund and protect
their protect consumption and other non-retirement needs.
3.COST FACTOR
 Allows investment up to 50 percent in equity and rest are divided among
government securities.
 Risk is also considered to be important determinant of investment.
 Ability of NPS to generate adequate replacement rates depend on future returns
on assets and portfolio composition

13. Reasons for failure:
 Difficulty to access
 Lack of incentives
 Lack of participation by the service providers
 Low distribution cost to the agents and point of presence
 Complications of tier 1 and tier 2 account
 Unexpected returns
 Low Fund management cost as 90 paisa for Rs 10000 fund
management which affects the fund managers operational cost
and income

14. STUDY OF COVERAGE OF NPS
 From the beginning, The New Pension System (NPS), aimed at reaching out to
270 million people, or 90 per cent of the workforce.
 PFRDA is the regulator for the NPS, established by the Government of india on
23 August 2003 to promote old age income security, took help of POS and 7
associate banks. This distribution system of NPS fetched the figure of sell up to lacs.
YEAR NO. OF POLICY
HOLDER
TARGET RATIO
2009 4,600 270 Million 0.001703704
JUN-2010 6,000 270 Million 0.002222222
MARCH-2011 1,05,000 280 Million 0.0375
JUNE-2012 1,65,000 280 Million 0.058928571
MARCH-2013 2,00,000 280 Million 0.071428571

15. STUDY OF COVERAGE OF NPS
0
50000
100000
150000
200000
250000
2009 Jun-10 march 2011 june 2012 2nd march
2013
no.of policy holders
no.of policy holders

16. STUDY OF COVERAGE OF NPS
 NPS launched on may 1st 2009 with aim of reaching out to 270 million people, or
90 per cent of the workforce.
 But reached to around 2 lac customers out of 2840 lac target customer as per march
2nd 2013. i.e. penetration is 0.070 %.
REASON BEHIND LOW PENETRATION IS POOR P. & D. STRATEGY
 Due to lack of participation by service providers.
 There is no direct incentive for people selling the scheme.
 Another major problem with distribution system was reach or approach up to the
needy customers.
So, in order to increase effectiveness of marketing and distribution particularly the
POP performance we can implement two idea:
1. CORDINATION OF NPS-LITE AND OTHER SCHEMES BEING OPERATED
IN RURAL AREAS.
2. INCREASING THE INCENTIVES FOR POP’s

17. STRENGTH
1.Low cost plan
2. No restriction on maximum amount of contribution
3. Investment in equity index funds as per the return required by pensioner through
active choice fund
4. Investment in government securities for investors with risk averse and capital
appreciation approach
5. Tax benefits under 80CCD2 upto 10 percent of basic salary invested in NPS is
tax deductible for people who fall in income tax slab of 20 or 30 percent
6. Charges for investment in nps are 0.0084 which is lower than investment in
mutual funds and index fund charges
7. The nominee receives entire pension in case of insured's
death
8.The NPS give weighted average return of 14.82 percent based on the past data
WEAKNESS
1.Tier -1 option doesn't give much flexibility.Its a rigid structure
2.Annuity rates after maturity are not fixed.There isno floor rate so you
cannot be sure of the returnsunitl maturity
3.Onlty six fund managers makes it a riskyproposition .If we take into
account the working population of india,the number of fund managers is
very low
4. In case of withdrawal from the scheme only 20 percent of the
accumulated saving is disbursed rest 80 percent is used to buy an
annuity plan
OPPORTUNITIES
Currently there are six fund managers but in order to cater to the needs of massive
opulation of India new investment horizons can be created .
The investment in new pension schemes will increase the demand of financial
struments and will lead to capital market development.
The pension fund investment is long term risk adjusted return ,it doesn't involve
frequent trading and will not increase the market volatility.
The pension fund transfer will increase the demand for fund transfer and will
rect invest in banking instrument ,which will encourage banks to open branches in
nbanked areas.
The major benefit under pension plan will be to the life insurance industry as at
ast 40 percent of accumulated pension needs to be invested in life annuity which
ads to growth .
THREATS
1.The return on the investment depends on the market luctuations
and economic conditions there there exist a uncertainity in modest
returns.
2.Stiff competition from employee pension scheme,employee
provident fund ,Indira Gandhi National Old Age Pension scheme
and Public provident fund .
3. The other micropension schemes like SERP ,SEWA are more
easily approachable then New Pension Scheme.
4. Fund management cost will increase depending on the pension
laibility and the cost involved.
NEW PENSION
SCHEME

18. COMPARATIVE ANALYSIS OF NEW PENSION SCHEME
WITH OTHER PENSION SCHEMES AVAILABLE IN THE
MARKET
 New Pension scheme has been facing a great competition with various other
government pension schemes(like EPF,PPF) and linked pension schemes(private
pension linked products) available in the market.
 These government schemes were basically defined benefit schemes where a certain
amount of benefit was defined at the beginning while on case of linked and NPS
scheme were defined contribution schemes ,where a certain contribution were defined
by both employer and employees
 The given table shows the various parameters on which the different pension schemes
available in market are differentiated. We would analyze each of these factors in detail
and account for NPS feasibility among these schemes:

19. PARAMETER NPS PENSION ULIPS MF PENSION
PRODUCTS
EPF PPF
FUND
MANAGEMENT
COST(OF TOTAL
PREMIUM)
0.25% 1.35% 2.25% NIL NIL
LOCK-IN PERIOD 60 years 60 years No lock-in No lock-in 15 years
PRE MATURE
WITHDRAWAL
NOT ALLOWED IN TIER 1
ACCOUNT
NOT ALLOWED NO
RESTRICTIONS
BUT WITH EXIT
LOAD
ALLOWED
FOR SPECIFIC
PURPOSE
UPTO 50% ON
COMPLETION OF
7 YEARS
WITHDRAWAL ON
MATURITYAND
ANNUITY
UPTO 60%
WITHDRAWAL,ANNUITY
FROM REST
33% WITHDRAWAL
ANNUITY FROM
REST
ANNUITY NOT
APPLICABLE
ANNUITY
NOT
APPLICABLE
ANNUITY NOT
APPLICABLE
EQUITY EXPOSURE RESTRICTION 50%
EXPOSURE
NO RESTRICTION NO RESTRICTION NOT
ALLOWED
NOT ALLOWED
TAX
IMPLICATIONS(ON
CONTRIBUTION)
80C TAX SAVINGS 80C TAX SAVINGS NO TAX SAVINGS 80C TAX
SAVINGS
80C TAX
SAVINGS
TAX
IMPLICATIONS(ON
MATURITY)
WITHDRAWABLE ON
MATURITY AND ANNUITY IS
TAXABLE
33% LUMP SUM
WITHDRAWAL IS
TAX
FREE,ANNUITY IS
TAXABLE
LONG TERM
CAPITAL GAINS
ON EQUITY
FUNDS ARE TAX
FREE
MATURITY
AMOUNT IS
TAX FREE
MATURITY
AMOUNT IS TAX
FREE
TYPE
OF PLAN
DEFINED CONTRIBUTION DEFINED BENEFIT DEFINED
BENEFIT
DEFINED
BENEFIT
DEFINED
BENEFIT

20. FUND MANAGEMENT COST
We find that from the above table, FUND MANAGEMENT COST in case of NPS is
very less. This makes NPS more profitable to government, employees as well as
employer.
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
NPS PENSION ULIPS MF PENSION
PRODUCTS
EPF PPF
SCHEMES
FUND MANAGEMENT COST
FUND MANAGEMENT COST

21. LOCK IN PERIOD
Lock in period is actually the time frame in which the pensioners are guaranteed for
contribution to pension schemes. As we see in the chart the lock in period for NPS and
Pension ULIPS is being 60 years, while in case of Mutual fund pension schemes and
EPF provides flexibility to the pensioners for anytime withdrawal.
1 : NPS
2:PENSION ULIPS
3: MF PRODUCTS
4: PPF
5: EPF
60 60
0 0
15
0
10
20
30
40
50
60
70
0 1 2 3 4 5 6
LOCK IN PERIOD
LOCK IN PERIOD

22. PRE MATURE WITHDRAWAL:
It is the withdrawal of money from the scheme before maturity, such flexibility in
pension scheme is not allowed in case of NPS, Pension ULIPS, but however is allowed
for MF pension products, EPF and PPF under certain restrictions as mentioned in table.
The flexibility provided accounts as a great factor for selection of scheme. The ranking
of various schemes on basis of such flexibility accounts as:
• EPF
• PPF
• MF PENSION PRODUCTS
• NPS
• PENSION ULIPS

23. WITHDRAWAL ON MATURITY AND ANNUITY:
The amount of money that the pensioners would get depend greatly on the withdrawal
amount that they will get on maturity and also on the annuity payments received from
the annuity bought from any life insurance companies. This flexibility is provided only
in present schemes which was not in older government schemes like EPF,PPF etc.
60%
33%
100% 100% 100%
67%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0%
20%
40%
60%
80%
100%
120%
NPS PENSION ULIPS MF PENSION
SCHEMES
EPF PPF
MATURITY
ANNUITY

24. EQUITY EXPOSURE
Some amount of contribution received from the pensioners are invested in equity
markets which fetch higher returns. NPS scheme has certain restrictions in it as of 50%
of the amount of contribution can be invested in equity market, while no such
restrictions are there in other old pension schemes.
This amounts for the flexibility in scheme for the returns depending on market
conditions, which is not much in case of NPS.The schemes could be ranked on this
parameter as:
 EPF
 PPF
 PENSION ULIPS
 MF PENSION PLANS
 NPS

25. TAX IMPLICATION ON CONTRIBUTION AND MATURITY:
In case of contribution the tax savings are provided in case of NPS as with other old
pension schemes like EPF,PPFas of under section 80c of income tax act, which allows
to help in your tax income deductions, while no such tax savings are allowed for MF
pension plans.
Similar is in case of maturity the section 80c helps in providing tax savings by reducing
your maturity amount by the certain taxable income, However in case of NPS the
withdrawal amount as well as the annuity is taxable. In case of pension ULIPS 33%
lump sum withdrawal is tax free, annuity is taxable. In case of MF pension plans long
term capital gains on equity funds are tax free, however the withdrawal amount is
taxable. However other government schemes like EPF ,PPF the maturity amount is tax
free. Ranking of various scheme on such parameter is as:
• EPF
• PPF
• PENSION ULIPS
• NPS
• MF PENSION PLANS

26. Reasons for failure:
 Difficulty to access
 Lack of incentives
 Lack of participation by the service providers
 Low distribution cost to the agents and point of presence
 Complications of tier 1 and tier 2 account
 Unexpected returns
 Low Fund management cost as 90 paisa for Rs 10000 fund
management which affects the fund managers operational cost
and income

27. DEMAND OF PENSION IN INDIA
Demographics
Year Median Age in years
2010 25
2020 29.5
2030 33.2
2040 35.4
2050 38.4
0
10
20
30
40
50
60
70
0
50
100
150
200
250
300
350
Year 2020 Year 2030 Year 2050
Projected increase in percentage and
numbers of Grain population
Number of
eldery people
Percentage
growth
On the basis of the above data it can be inferred with the
development in innovation and technology has lead to
increase in longevity of the population due to which average
life expectancy has risen by approximately 15 percent for
females and 14 percent for males.
Therefore, increase in life expectancy will require to fulfill
the basic needs in the old age which will lead to great
demand of pension schemes in India.
Therefore, with the improvement in cost factors such as
management expense and easy availability will lead to
success of the New Pension scheme

28. DEMAND OF PENSION INDIA (CONT.)
85%
15%
Work force Distribution
Earners
Unpaid Family workers Informal Sector
78%
Formal Sector
22%
Earners Distribution
Labor Market Status, Income and Savings Capacities
About 85 percent (363 million) of the total workforce comprising 425 million
persons receive earnings while the other 15 percent or 62 million are unpaid family
workers. As shown in Figure, the 363 million earners are divided into 284 million
informal sector workers and 79 million formal sector workers.
The data has been illustrated in the pie chart showing distribution of work force .
The formal sector consists of 53 million earners, who belong to the target group of
the EPFO, and 26 million workers in small firms, who are excluded from EPFO
coverage.
Source :PFRDA (2009): NPS Handbook.
pfrda.org.in/writereaddata/linkimages/Manual%20Part_49990268420.pdf

29. Current Scenario (Today’s Times of India )

30. Conclusion
Combining various pension schemes on various parameters we find that NPS was a
good choice for pensioners but what not worked out were the various factors we
have seen earlier that accounted for the failure of NPS. However if implement these
factors were implemented accordingly as per other government schemes, the scheme
would be a success.
SUGGESTIONS
The success of the NPS scheme depends on the following parameters
The management of fund by pension fund managers
Increasing the incentives to the point of presence (distributions channel )
Double digit return expected in range of 10.51 to 12.78 which is accrued by
investing in the different class of securities
 Distribution through micro channel