Friday, February 25, 2011

Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011

Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011 was tabled in the Parliament on 24th March, 2011. It explicitely states that there is no assurance of benefits in the New Pension Scheme (NPS), the market based guaranteed mechanism is to be purchased by the subscriber.
Highlights of the scheme:

Pension Fund Regulatory and Development Authority (PFRDA) has been entrustd to look into the financial matters relating to post retirement life of the citizens of India. The New Pension Scheme introduced by the Government of India with a vision to offer flexibility to the investors in choosing asset allocation and fund managers.

Two types of accounts are available under the New Pension Scheme —

Tier – I account: Individuals can contribute their savings for retirement into this non-withdrawal account.
Tier — II account: Under this saving facility, individuals are free to withdraw their savings whenever they require.

The New Pension Scheme had already been made mandatory for Central Government employees from 2004. ‘Tier – I account’ is available for contribution from May 1st, 2009 while the commencement of the Tier – II account is yet to open by PFRDA.

A citizen of India, between 18 and 55 years, is entitled to open this account. Investors can open these accounts in 22 financial entities prescribed by PFRDA – including Life Insurance Corporation of India (LIC), State Bank of India (SBI), ICICI Bank and UTI Asset Management.

Minimum contribution per instalment is Rs 500 and per year is Rs 6000 — a minimum of four contribution per year is mandatory. The account holder will decide on frequency and extent of the contribution across the year as per their convenience.

40% of the pension wealth is compulsory to be withdrawn on attaining normal retirement age and 60% in lump sum or in phased manner (minimum of 10% every year). If anyone wishes to withdraw before retirement, he/she has compulsorily to purchase annuity over 80% of the amount while the remaining 20% can be withdrawn as lump sum.

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