National Pension System & PFRDA (Economy & Social Sector Schemes)
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National Pension System & PFRDA
Context: Savers concerned about the deleterious impact of inflation on their fixed retirement income may soon be able to buy indexed annuity products with returns linked to the pace of price rise, the Pension Fund Regulatory and Development Authority (PFRDA) chief signalled.
About the Pension Fund Regulator Development Authority (PFRDA)
Based on the report of Old age social and income security, which was a national project that the
Government of India had initiated to examine policies related to old age income security in
India, the government decided to replace the then defined benefit pension system to defined
contribution pension system with respect to all new joinees of Central/State Government except
armed forces.
Accordingly, the Interim pension fund regulatory and development Authority (IPRDA) bill was
passed by Union parliament in February 2003, which established IPRDA to promote, develop,
and regulate pension system in India.
And the final system i.e., the Pension Fund Regulatory and Development Authority (PFRDA)
was established with the President’s assent on 19 September 2013 and was made a permanent
Act.
The PFRDA is a statutory regulatory body set up under PFRDA Act with an objective to
promote old age income security and protect the interests of National Pension Scheme
subscribers.
Objective/Vision: To be a model Regulator for promotion and development of an organized
pension system to serve the old age income needs of people on a sustainable basis.
While the pension system was initially introduced for Government employees, it is now
extended to all citizens of India and non-resident Indians including self-employed persons.
Composition of the Authority
The Authority shall consist of a Chairperson and not more than six members, of whom at least
three shall be Whole-Time Members, to be appointed by the Central Government.
The pension regulator, which oversees the National Pension System (NPS) with retirement
savings of ₹6.76 lakh crore, is working with the Insurance Regulatory Development Authority of
India (IRDAI) to provide such an option to its more than 4.7 crore members that include
government and private sector employees as well as self-employed and informal sector workers.
National Pension Scheme (NPS)
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme
designed to enable the subscribers to make optimum decisions regarding their future through
systematic savings during their working life.
NPS seeks to inculcate the habit of saving for retirement amongst the citizens.
It is an attempt towards finding a sustainable solution to the problem of providing adequate
retirement income to every citizen of India.
It is introduced by PFRDA whereby subscribers’ contributions are collected and accumulated in
an individual pension account using various intermediaries.
Under NPS, individual contributions are pooled together into a pension fund and are invested as
per approved investment guidelines.
Funds are generally invested in diversified portfolios consisting of government bonds, bills,
corporate debentures, and shares, based on subscribers’ choice.
Subscribers also have an option, at the time of exit, to purchase a life annuity by using
accumulated pension fund.
Besides the NPS, some mutual funds and insurance companies also offer Pension plan or
retirement plan, which are not under the jurisdiction of PFRDA.