Pro's and Con of National Pension Scheme (NPS)

PFRDA (Pension Fund Regulatory and Development Authority) was established by the Government of India to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds.
Initially it was decided that it will be open for public from 1st April, 2009, but the launch date has been postponed due to the model code of conduct for the general elections coming into effect.
Any Indian citizen will be able to start a New Pension Scheme account and can start investing any amount up for a pension.

A Few points to Note are:

1. There will be multiple choices of investment and pension fund managers.
2. All records will be kept by a central authority.
3. Central authorities and fund manager will be providing performance reports and NAVs(Net Asset value) regularly, so investor can track and invest accordingly.
4. In Starting, NAVs will be declared once every year and switching fund manager will be allowed only once a year.
5. Currently six fund managers have been choosen : UTI, SBI, ICICI Prudential, Reliance Capital, IDFC and Kotak Mahindra that will manage investment money for NPS. (Surprisingly LIC has been leftout here)
6. Fund Managers will charge very low fund management charge (1 Paise per Rs.100 invested)
7. Tax Benefit Under Section 80C of Income Tax Act.

For Govt Employees: What are the implications

1. All new goverment employees (central and state) will no longer have GPF accounts.
2. NPS account will be mandatory for them.
3. NPS will work on defined contribution basis and will have two parts – Part I and Part II.
4. Part I - Monthly contribution will be 10 percent of basic salary and equal amount will be deposited by Govt. This amount will be kept in a non withdrawal Pension Tier I account.
5. Part II - It will be voluntary tier-II withdrawable account from which individual can withdraw money anytime without giving reason.
6. Govt Employee can exit after age of 60 years from Tier I Scheme and it will be mandatory for him to invest 40% of pension amount to purchase an annuity thru a Life Insurance Company, It will provide pension for the life time.
7. In case of employee wants to leave NPS before age of 60, the mandatory annuity will be 80 per cent of the pension amount.Exit age for new pension scheme will be 60 years.

Charges:

• For account opening : 50 Rupees
• Annual maintenance charge: Initially 350 Rupees per year
• Transaction charge: Initially 10 Rs. per transaction
• Fund management charge: 0.0009% per year on the fund value.
  

Flip side of NPS:

• Less Transparency : Since NAV is scheduled to be released only once a year.
• Less Flexibility : Since Switching is allowed only once a year
• Ultimately NPS transfers the corpus to a Life Insurance Company – thereby losing its edge over the existing LIC players.
• Taxable Returns : The bad part about NPS is that the returns will be fully taxable (not like EPF and PPF.) However PFRDA has suggested government to exempt scheme from tax, but that decision will only be taken by new government

Any way government schemes are safer for a peaceful retirement. You can open your NPS account as part of your retirement planning. But do have other options like pension plans from LIC and Mutual funds to fulfill the gap left by NPS.