Puneet Varma (Editor)

HDFC Pension

Updated on
Edit
Like
Comment
Share on FacebookTweet on TwitterShare on LinkedInShare on Reddit
Type
  
Private company

Founded
  
2013

Key people
  
Mr. Sumit Shukla (CEO)

Industry
  
Pension Funds

Area served
  
India

Products
  
Pension

HDFC Pension (HDFC Pension Management Company Limited) is a wholly owned subsidiary of HDFC Life. It has been appointed by Pension Fund Regulatory and Development Authority (PFRDA) as a fund manager for as a part of the architecture of National Pension Scheme. HDFC Pension has long term investment philosophy that has been derived from our strong parentage that has a strong presence in the industry. With experienced portfolio managers on board, HDFC Pension is committed to giving the most fulfilling and rewarding investment experience in pension administration and management.

Contents

PFRDA

The Pension Fund Regulatory and Development Authority (PFRDA) is a pension regulatory authority which was established by Government of India on August 23, 2003. PFRDA is authorized by Ministry of Finance, Department of Financial Services. PFRDA promotes old age income security by establishing, developing and regulating pension funds and protects the interests of subscribers to schemes of pension funds and related matters. PFRDA is responsible for appointment of various intermediate agencies such as Central Record Keeping Agency (CRA), Pension Fund Managers, Custodian, NPS Trustee Bank, etc.

NPS

The national pension system (NPS) is a defined contribution system developed by the government of India to provide pension savings to all its citizens. Initially rolled out for government employees only, the scheme is now made available for all citizens of India. This is a voluntary scheme that allows every citizen of India to build their own retirement corpus.

Any individual from the age of 18 to 60 can enroll into the scheme. 60 years or the superannuation age of an organization is the defined retirement age for NPS. At retirement the employee will have to invest a minimum of 40 percent of the retirement corpus to purchase annuity (through which monthly pension will be received). The annuity will be lifetime income for the subscriber post retirement.

NPS is a portable account that can be operated across geographies and organizations. Subscriber can move across the different sectors available for NPS (government, corporate, individual). It provides multiple flexibilities and choices to the subscriber – service provider, fund manager.

Investment Options

Tier I account – Also known as the pension account, the Tier I is a locked in account which restricts withdrawal until retirement (read withdrawals). A minimum of Rs. 6000/- annual contribution is required for this account in order to keep it alive.

Tier II account – Only a subscriber holding a Tier 1 account can open a Tier II account. This acts as a normal investment account. This account is liquid and withdrawals can be made as and when required. Minimum yearly contribution of Rs.250 however on 31 March Rs. 2000 in the form of units should reflect in the account.

An active Tier I account is mandatory for opening Tier II account. Tier II account can be opened along with Tier I account or at any time after Tier I account opening.

Fund options

NPS gives Subscribers option to invest according to their choice and risk appetite among three funds. Three funds under NPS are

  1. Equity (Asset Class E) [Max 50%]
  2. Corporate Bonds (Asset Class C)
  3. Government Securities (Asset Class G)

Subscriber can switch the asset allocation once in a financial year.

Investment Mechanisms

Depending on the expertise on taking call on right asset mix, Subscribers have 2 investment options under NPS

Active Choice – This mechanism allows the subscriber to decide the percentage mix of the three asset classes i.e. equities, corporate bonds and government securities.

Auto Choice – Also known as the life cycle fund, investments under this choice investments are made based on the age of the subscriber. There is a predefined mix that gradually reduces the equity investment and increases the debt investment.

NPS Account Withdrawal

1. Withdrawal from NPS (applicable only for Tier I account):

  • Subscriber can withdraw up to 25% of Contribution amount after 10 years. 2nd and 3rd withdrawal will be allowed after a gap of 5 years after the first withdrawal is made.
  • Please note that withdrawal amount will be calculated on Contributed amount and not on the Corpus
  • For Corporate Subscribers, amount invested to avail of the benefit of section 80CCD (2) will not be allowed for withdrawal till the Subscriber attains the age 60 years / Superannuation age of the Corporate
  • Withdrawal will be only for specific purposes like Child marriage, Higher education, treatment of some of the critical illnesses etc. Please refer the PFRDA guidelines

    • 2. Exit from NPS

  • NPS investors can make partial withdrawals up to 25% of the contributions made
  • The 25% contribution excludes contributions made by the employer
  • Withdrawals permitted for higher education, children's marriage, purchase/ construction of house and treatment of critical illness
  • Investors can defer annuitisation by a maximum of 3 years
  • 100% withdrawal allowed if accumulated corpus on reaching 60 years is equal to or less than Rs 2 lakh.

    • 3. Buying annuity in pre-mature exit

  • If the age of Subscriber (at the time of pre-mature exit from NPS) is less than the age at which annuity has to start, the amount will remain invested in NPS. On attainment of the age, the amount will be transferred to the Life Insurance company for getting desired annuity
  • In such case, CRA, Fund Management, Custodian charges would be levied until the funds are moved to Annuity Service Provider

    • 4. Deferment option

  • Subscriber can defer the decision to invest in Annuity or lump sum withdrawal when exiting from scheme at Superannuation age (in case of Corporate Subscriber) or at the age of 60 years.
  • Annuity buying can be deferred for 3 years while lump sum withdrawal can be deferred for 10 years
  • CRA, Fund Management and Custodian charges would be levied until the funds are moved to Annuity Service Provider / withdrawn
  • Funds will remain invested and will keep on growing
  • If funds are not invested in annuity / not withdrawn after the end of deferment period, funds would be monetized

    • 5. Investment in NPS after 60 years

  • At the age of 60 years or Superannuation age when Subscriber opts for deferment option / exit option immediately, he / she will have a choice to contribute further to NPS account till 70 years of age.
  • Please note that fresh enrollment in NPS is not allowed after 60 years of age

    • 6. No obligation to invest in Annuity

  • In case of pre-mature exit from NPS, if the fund value is less than or equal to Rs.1lac, Subscriber can withdraw the entire fund without an obligation to invest in Annuity
  • In case of exit from NPS at the age of 60 years / Superannuation age, if the fund value is less than or equal to Rs.2lacs, Subscriber can withdraw the entire fund without an obligation to invest in Annuity.

    • Stakeholders of the NPS System

    NPS has a unbundled architecture where each function is performed by different entities as mentioned below

  • Point of Presence – Points of Presence (POPs) are the first points of interaction of the NPS subscriber with the NPS architecture. The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend a number of customer services to NPS subscribers.
  • Pension Fund Managers – The Pension Funds (PFs) appointed by PFRDA would manage your retirement savings under the NPS
  • Central Record keeping Agency – The recordkeeping, administration and customer service functions for all subscribers of the NPS are being handled by NSDL e-Governance Infrastructure Limited, which is acting as the Central Record-keeper for NPS.
  • Annuity Service Providers – ASPs would be responsible for delivering a regular monthly pension to you after your exit from the NPS.
  • Trustee Bank – The Trustee Bank appointed under NPS shall facilitate fund transfers across various entities of the NPS system viz. PFMs, ASPs, Subscribers, etc. Axis Bank has been appointed as the Trustee Bank
  • NPS Trust – The NPS trust has been set up and constituted for taking care of the assets and funds under the NPS in the interest of the beneficiaries (subscribers)
  • PFRDA – An autonomous body set up by the Government of India to develop and regulate the pension market in India

    • Tax Benefits of NPS

    Investment in NPS reduces your tax liability by availing the deductions u/s (80CCD) which will be up to Rs.150,000/- under section 80 CDD(1) and from Budget 2015 onwards, an additional Rs.50,000/- under section 80CCD (1B) per assessment year. This additional income tax benefit is applicable from FY 2015-16/AY 2016-17 and makes NPS an attractive investment option.

    References

    HDFC Pension Wikipedia
    (Text) CC BY-SA