PFRDA to come up with new Guideline to prevent misuse of NPS Swavlamban

In order to propagate New Pension System (NPS) among workers in the unorganized sector, the government, in the Union Budget announced that it will contribute Rs1,000 per year for the next three years for every investment between Rs1,000 and Rs12,000 made by the unorganized sector employees. 

But the scheme called “Swavalamban”, has left the pension regulator body, Pension Fund Regulatory and Development Authority (PFRDA), apprehensive with ways to ensure that the product is not misused and soon will be coming up guidelines regarding this.

As stated by R.S. Nair, executive director, PFRDA: “We don’t want people coming in to invest only for the purpose of this free contribution. We want people to consider NPS as a serious pension option and, therefore, we are working on guidelines that will ensure some kind of a lock in.” 

This benefit will be applicable only to the ones who have opened a new pension account with NPS in FY11.

Investment in the NPS can be done in two ways. The tier I account, the main pension account of NPS, matures when one turns 60. It gives a lump sum of up to 60% of the total accumulated value in the account, and rest amount can be taken only through an annuity product from a life insurance company, which gives periodic payments. However, if one wants to withdraw before the tenure, then he/she will get only 20% of the corpus as lump sum. The tier II account gives more flexibility to investors in terms of premature withdrawals. However, you can’t have a tier II account without having the main pension account. 

PFRDA is working towards making the lock-in more stringent for people benefiting from Swavalamban and would come up with guidelines very soon

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