CONTRIBUTORY PENSION SCHEME (CPS)

1.Introduction: Vide G.O.Ms.No.653 Finance (Pen-I) Dept. Dt:22.09.2004, State Government have introduced CPS to all the employees recruited on or after 01.09.2004 on the same lines of Government of India’s New Pension System. The scheme is applicable to all the organizations covered under A.P. Revised Pension Rules, 1980. Accordingly, each employee who is recruited on or after 01.09.2004 shall pay a monthly contribution of 10% of the basic pay and DA from the salary and State Government will make a matching contribution for each employee who contributes to the scheme. 2. PFRDA : The Central Government has constituted the Pension Fund Regulatory and Development Authority (PFRDA) to act as regulator for the pension sector of the entire Nation and also to protect the interest of the subscribers of pension fund and for matters connected herewith or incidental thereto. 3. NSDL (CRA) :  The PFRDA has appointed the National Securities Depository Limited (NSDL), Mumbai as the Central Record Keeping Agency (CRA) to maintain the records of Contribution and its deployment in various pension fund schemes for the employees. 4. Pension Fund Managers (PFMs) :  The SBI, LIC and UTI have been selected as Pension Fund Managers (PFMs)for investing the CPS funds at the rates of 40%,31% and 29% respectively. NPS Trust has been set up as Trustee for CPS funds and the Bank of India has been appointed as Trustee Bank. 5. Final payment procedure :  At the time of retirement, the employee would be required to invest 40% of the pension wealth to purchase an annuity which will provide pension for life time to the employees and in the event of his death to his dependent parents/spouse. The remaining 60% pension wealth would be paid to the employee at the time of his retirement to utilize in any manner. 6. Clarification regarding payment of Family pension to the spouse of CPS employee while in service :   Family pension under New Pension Scheme shall be paid in death cases provisionally pending framing of rules regulating such cases and the payment made on such a provisional basis shall be adjusted against the payment to be made in accordance with the new rules to be framed. Thus, the adjustment of the payment arises only after Government announces the Rules regulating such cases under New Pension Scheme. 7. Role of DTA :  The DTA, AP, Hyderabad on behalf of Govt. of A.P. entered into an agreement with the CRA i.e. NSDL on 21.11.2008 and NPS Trust on 15.09.2009. Nodal officers such as DDOs have to deduct CPS contribution from the monthly pay bills of employees. The treasuty Officer have to upload the CPS contributions to the CRA i.e. NSDL and the corresponding amounts have to be transferred to Trustee bank i.e Bank of India. From the Pension Trust, the funds transferred to the Pension Fund Managers for investing the funds in various schemes. 8. Registration Procedure : As per NSDL norms, the employees and the nodal officers of the state who have to make transactions of CPS are necessarily be registered with NSDL by submitting relevant forms. Initially, DTA by submitting N1 form has got registered with NSDL and subsequently registered all the DTOs/PAOs with NSDL by submitting N2 forms. Subsequently, DDOs were registered with NSDL by submitting N3 forms. For employees registration with NSDL, each employee has to submit S1 form to NSDL. 9. CPS applicability to State Autonomous Bodies:  Government vide Circular Memo No.41/01/A2/Pen.I/2012 Dt:18.06.2012 have issued operational guidelines for implementation of CPS for the State Autonomous bodies and all other institutions whose pay and allowances were drawn form Consolidated fund of the State or not but covered under A.P.R.P.Rules, 1980. The DTA will function as facilitator and the organizations have to be registered with NSDL through DTA by forwarding N2 and N3 forms. After this each DDO under the treasury has to be registered with NSDL by submitting N5 and N6 forms. For subscribers registration S1 form has to be submitted for allotment of Permanent Retirement Account Number (PRAN). Know your cps statement.  NEW PENSION SCHEME – HOW DOES IT COMPARE WITH THE OLD ONE  Important Features  Old Pension Scheme  New Pension Scheme  Intricacies and Implications  Employee’s Contribution  On the aggregate of Basic Pay, Special Pay and other allowances ranking for P.F, 10% has to be contributed by the employee.  This will be kept in the Individual’s P.F. account.  On the aggregate of Basic Pay, Special Pay and other allowances ranking for P.F. and also Dearness Allowance, 10% has to be contributed by the employee.  There will no longer be any P.F. account. The take home pay of the employee will get reduced, because of the additional amount deducted (10% on D.A.).  Additional Contribution from the employee  Employees can voluntarily contribute an additional amount that is equal to the compulsory P.F.   Employees have the freedom to stop VPF contribution, as and when they want, by giving 1 month notice.  Tier II account is a voluntary saving facility, wherein the subscriber is permitted to save any additional amount.  Withdrawals from Tier II Account are allowed, as per the subscriber's choice.  From Tier II account, unlimited number of withdrawals are permitted, with the only condition that a minimum balance of Rs 2000 is maintained at the end of the Financial Year (i.e. as on 31st March).  Fees/Charges deducted  There are no charges deducted.  Even the administrative expenses like postage, stationery, telephones, electricity and rent are absorbed by the bank.  As there is no full time member for the P.F. trust, no salaries are paid to them.   This way, no additional cost is passed on to the subscriber. Following costs are to be borne by the Subscribers at the time of registration and/or performing any transaction. The contribution will be remitted, net of bank charges.   Fixed cost: One-time account opening cost and issuance of PRAN – Rs.50 Initial subscriber registration and contribution upload – Rs.40 Annual maintenance charges – Rs.225 NPS is touted as the lowest cost pension scheme. Other handling and administrative charges are also claimed to be the lowest. There are no entry and exit loads.   But, it remains to be seen how the actual costs move in the future.   With inflation, the costs may go up further.  When more pension fund managers enter the fray and the subscriber base also expands vastly, the charges may also come down in future.   Whatever be the charges, they result in diminution of the pension wealth.  Loans  Loans may be availed for various purposes, within the limit fixed for each purpose, as per the guidelines fixed by individual banks.  Loan facility is not available.  Even in emergency situations, an employee cannot borrow against his own contribution.  Payment on the death of the subscriber, before retirement  If the subscriber dies before retirement, his individual contribution to P.F. with the accrued interest is paid to the nominee.  Bank’s contribution is retained to service Family Pension.  In the unfortunate event of the death of the subscriber, option will be available to the nominee to either receive 100% of the pension wealth in lump sum or to continue with the NPS in his individual capacity, after complying with the KYC norms  Most of the legal heirs of the deceased employee will be compelled to accept the lump sum only, as they do not derive any extra benefit by continuing in the scheme.  Family Pension  Besides, the spouse of the deceased is paid family pension at a reduced rate (which ranges from 15% to 30% of the Basic pension payable).  No family pension is paid, after the death of the subscriber/pensioner.  Only the pension wealth in lump sum is paid.  The dependents of the pensioner do not receive any family pension which attracts D.A.  It may please be noted that D.A. also stands revised periodically, whenever there is a rise in consumer price index.