National Pension Scheme in India: Functions and Performance
Dr. Nandkumar Baburao Bodhgire
Assistant Professor in Economics, School of Social Sciences, SRTM University, Nanded.
ABSTRACT:
National Pension Scheme is a mandatory for all central and state government employees who joined in services after 2005. Although the scheme is implemented in 2006, most of the government employees are unknown about the benefit of the same scheme. Hence, this paper highlights functions of national pension scheme and performance of pension fund managers in terms of its return in 2020. ANOVA tool is employed for analyzing differences in return by pension fund managers. The study is concluded that HDFC pension fund gives more return other than pension fund.
KEYWORDS: NPS, PFRDA, ANOVA.
INTRODUCTION:
The National Pension Scheme is an investment activity that helps subscribers before and after retirement. Initially, this scheme was applied to only central government employees but now it is open for all citizens in India. National Pension Scheme was started by central government on 1st Jan 2004 under the guideline of PFRDA (Pension Fund Regulatory and Development Authority) which is main pension institute established on 23rd August 2003. The Central government also announced to all state governments to participate in defined contribution pension scheme subsequently, most of the states have accepted this scheme for employees.
FEATURES OF THE SCHEME:
1) It is called “ Defined Contribution Pension Scheme”
2) It will be implemented from 1st Nov 2005
3) The scheme is mandatory for Govt. employees who joined 1st Nov 2005 or thereafter in state govt. services
4) The scheme is based on two stage that is Tier I and Tier II. Tier I for Govt Employees and Tier II for Voluntary employees
5) Each govt. employees have to pay a 10% amount as monthly contribution from his basic salary including dearness allowance. This amount will be deducted every month from salary. At the same proportion, state govt will contribute all above contribution and revenue from investment will be deposited in Tier I and Tier II. Each Govt employees, wish to open an account in Tier 2 Instead of Tier 1, can withdraw deposited amount. Govt does not contribute in Tier II.
6) Govt Employees can close their Tier I account after retirement at the age of 58/60 year. It is mandatory to purchase a 40% annuity amount form total pension amount is regulated by PFRDA.
Functions of National Pension Scheme:
The following entities are involved under NPS:
1) NPS Trust: It was established by PFRDA on 27th February, 2008 for taking care of the assets and funds under National Pension System. Individual NPS Subscribers can be taken benefit of the NPS trust which manage and realize funds to subscribers.
2) Central Recordkeeping Agency (CRA): NSDL e-Governance Infrastructure Limited is acting as the Central Record-keeper for the NPS which functions recordkeeping, administration and customer service.
3) Pension Fund Managers (PFM): This is very crucial part for NPS subscriber. The contributed amounts are invested and accumulated by pension fund managers to make payments to NPS subscribers.
4) Trustee Bank: PFRDA has been appointed to Axis Bank Ltd as the Trustee Bank for NPS. It controls the flow of funds and provides banking facilities by guidelines given by the Authority. It receives NPS funds from all Nodal Offices and transfers to Annuity Service Providers.
5) Annuity Service Providers (ASPs): ASPs will be delivered a regular monthly pension to the Subscriber after exit or withdrawal from NPS.
6) Points of Presence (POPs): The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend several customer services to NPS Subscribers.
Tax Benefits under NPS:
Income Tax Act allows benefits under NPS as per the following sections:
a) On Employee’s contribution: Employee’s own contribution is eligible for tax deduction under sec 80 CCD (1) of Income Tax Act up to 10% of salary (Basic + DA). This is within the overall ceiling of Rs. 1.50 Lacs under Sec. 80 CCE of the Income Tax Act.
b) On Employer’s contribution: Up to 10% of Basic and DA (no monetary ceiling) under 80CCD (2). This rebate is over and above 80 CCE limit of Rs. 1.50 lacs.
c) Voluntary Contribution: Employee can voluntarily invest an additional amount of Rs. 50,000 (or more) to the NPS Tier I account and claim tax deduction on the same under section 80 CCD 1(B), subject to a maximum of Rs. 50,000.
Exit/Withdrawl:
As per PFRDA (Exits and Withdrawals under NPS) Regulations 2015, following Withdrawal categories are allowed:
·
Upon Normal Superannuation – At least 40% of the accumulated pension wealth of the
Subscriber has to be utilized for purchase of an Annuity providing for monthly
pension to the Subscriber and the balance is paid as lump sum to the Subscriber.
In case the total corpus in the account is less than or equal to Rs. 2 lakh as
on the Date of Retirement, Subscriber can avail the option of complete
Withdrawal.
· Upon Death – At least 80% of the accumulated pension wealth of the Subscriber has to be utilized for purchase of an Annuity providing for monthly pension to the Spouse and the balance is paid as lump sum to the nominee/legal heir.
· In case the total corpus in the account is less than or equal to Rs. 2 lakh as on the Date of Death of the Subscriber (Government sector), nominee/legal heir can avail the option of complete Withdrawal. Further, if family member opts for family pension, as per the Regulations, all the accumulated pension wealth shall be transferred to the bank account of the Nodal Office for further settlement as per Government directives.
· Pre-mature Exit – At least 80% of the accumulated pension wealth of the Subscriber has to be utilized for purchase of an Annuity providing the monthly pension to the Subscriber and the balance is paid as a lump sum to the Subscriber.
In case the total corpus in the account is less than or equal to Rs. 1 lakh as on the Date of Resignation, the Subscriber can avail the option of complete Withdrawal.
· Aditya Birla Sun Life Pension Management Limited.
· HDFC Pension Management Company Limited.
· UTI Retirement Solutions Limited.
· SBI Pension Funds Private Limited.
· ICICI Prudential Pension Funds Management Company Limited.
· Reliance Pension Fund.
· Kotak Mahindra Pension Fund Limited.
· LIC Pension Fund.
SBI Pension Fund, LIC Pension Fund, and UTI Retirement Solutions are the only fund managers who manage pension contributions of government employees under NPS.
REVIEW OF LITERATURE:
1) Subhro Sen Gupta, Neha Gupta and Komalgang (April 2015) have studied the relationship between Tier I and Tier II account under National Pension Scheme and also observed correlation among equities, corporate bond and Government securities in terms of both account Tier I and Tier II. It is concluded that public give more preference to government securities.
2) Sane Renuka and Thomas Susan (July 2014) have suggested some points after passing of the PFRDA bill. These are: modification of investment choices, long term return policy, transparency and protection of customer rights.
3) Dr. Alpa A. Thakur, Dr. Mahendra H. Maisuria Dr. Prashant T Jariwala (Oct 2017) have studied the relationship of corporate bonds, equity and government schemes Tier I and have found best return NPS fund in particular period. The return of Tier I with respect of E,C and G schemes are considered for analysis best performance by NPS fund. It is observed that almost all pension funds give at least 11% return in equity market in a year. ANOVA results shows that there is no significant difference in mean percentages of return in selected NPS schemes-Tier I (E,C,G).
4) K Seethal and B. Menaka (Jan 2018) observed that national pension scheme is one of the crucial pension scheme for retirement planning. Those who does not have knowledge of financial market, can easily open NPS account by approaching any private or public sector banks. This scheme provides tax exemption on the total fund after exit and removal of GST on the annuity value.
5) Dr. Prashant T. Jariwala (Oct 2019) examined the return of equity, corporate bond and government bonds for the study. It observed that aggressive investors invest 50% in equity fund, 30% in corporate bonds and 20 in gilt funds. Secure investors always invest 60% in govt bonds 40% in corporate bonds and nothing in equity.
6) Dr. Vani Kamnath and Dr. Roopali Patil (May 2016) studied cost and benefits involved in the National Pension System. They also analysed differentiated NPS from other pension schemes and highlighted the uniqueness of the scheme. They also suggested the best products for the people of different age group as per cost benefit analysis.
7) Sapna Singh (Jan 2014) in her thesis found the current and prospective investors perception towards the pension schemes in Uttar Pradesh. She analysed that the investor who are in age group 40 to 60 gave priority to retirement planning for investment that preference for structure given by respondents (76%) prefer to invest their money in pure pension scheme.
8) Manisha Raj, Tanya Verma, Shruti Bansal and Aashita Jain (2018) analysed and compared the performance of growth and balanced mutual funds of private sector HDFC and Public sector SBI. They found that rate of return in HDFC mutual fund was more than SBI balance fund.
9) Krishna Murari (Dec 2020) analysed the performance of pension fund managers under NPS of India using data from NPS trust organisation’s annual reports and the Bombay Stock Exchange for 2011-2019 market return. It concluded that LIC pension fund Ltd is performed better than other pension fund managers in the equity under Sharpe ratio and Jensen’s performance measures.
METHODOLOGY AND RESULTS:
This study is mainly based on secondary data that is collected from www.npstrust.org.in. for showing performance of pension fund managers, ANOVA tools is employed.
OBJECTIVES OF THE STUDY:
1) To know the functions and benefits of National Pension Scheme to Indian citizen
2) To analysis the performance of various pension fund managers under National Pension Scheme
HYPOTHESES OF THE STUDY:
H01: there is no significant difference among pension fund managers in terms of its return
PERFORMANCE OF PENSION FUND MANAGERS:
Table No. 1 Pension Fund Managers
|
|
|
SBI Pension Fund |
UTI Retirement Solutions |
LIC Pension Fund |
|
Net Asset Value (NAV) |
|
29.1853 |
28.3644 |
28.2369 |
|
Return |
6-month |
7.58 |
7.36 |
7.37 |
|
1-year |
12.64 |
12.19 |
12.45 |
|
|
3-year |
9.48 |
9.56 |
9.42 |
|
|
5-year |
10.39 |
10.25 |
10.08 |
SBI Pension fund manager is performed well rather than UTI Retirement solutions and LIC Pension fund in terms of NPS Central Government Scheme. It is recorded 10.39 which is greater than other two. The fund chiefly invested in banking finance sector, government sector, and financial institutions. The next in line is recorded by the UTI Retirement Solutions with the returns generated recorded at 10.25% for the same period. LIC Pension Fund, on the other hand, recorded the returns at 10.08% in the last five years.
Table No. 2 Pension Fund Managers
|
|
|
SBI Pension Fund |
UTI Retirement Solutions |
LIC Pension Fund |
|
Net Asset Value (NAV) |
|
25.0669 |
25.1393 |
25.3053 |
|
Return |
6-month |
7.64% |
7.40% |
7.35% |
|
1-year |
12.68% |
12.20% |
12.34% |
|
|
3-year |
9.45% |
9.46% |
9.36% |
|
|
5-year |
10.45% |
10.26% |
10.14% |
SBI Pension Fund generates the highest returns of 10.45% under the NPS state government scheme in the last five years. The fund manager’s portfolio is predominantly exposed to the financial sector. The Assets under Management is also the largest in the lot and is recorded at Rs 57,474.92 crore as of May 2019.
Table No. 3 Pension Fund Managers
|
Average |
Highest Variance |
Lowest Variance |
|
HDFC Pension Fund11.33 |
Aditya Birla Pension Fund 14.96 |
ICICI pension fund 3.07 |
|
UTI Retirement Solutions 10.45 |
UII Retirement Solutions 7.19 |
Kotak Mahindra Pension fund 3.14 |
|
|
6.55 |
|
From the table no. 3, We can see clearly that average of HDFC Pension Fund is the highest among all the pension fund managers, followed by UTI Retirement Solutions. Standard deviation measures the degree of variability. It indicates that the Aditya Birla Pension Fund has the highest degree of variability, whereas ICICI pension fund has the lowest degree of variability.
Table No. 4 ANOVA for NPS Tier I Return 2021
|
Source of Variance |
SS |
df |
MS |
F |
P-value |
F-crit |
|
Rows |
187.39 |
7 |
26.77 |
5.94 |
0.000661 |
2.487 |
|
Columns |
50.100 |
3 |
16.70 |
3.70 |
0.0276 |
3.072 |
|
Error |
94.58 |
21 |
4.50 |
|
|
|
|
Total |
332.07 |
31 |
|
|
|
|
As the calculated value (5.94) is greater than critical value (2.487) at the 5% level of significance in the table no. 2, the null hypothesis (H01) is rejected, and hence, it can be concluded that there is a significant difference among pension fund managers. Similarly, As the calculated value (3.70) is greater than critical value (3.07) at the 5% level of significance in the table no. 2, the null hypothesis (H01) is rejected, and hence, it is concluded that there is significant difference among time periods with respect to its return.
Table No. 5 NPS Tier-I Equity Funds returns
|
Term |
Best Returns |
Pension Fund Manager |
|
6-month |
9.56 |
ICICI Pension Fund |
|
1-year |
9.73 |
SBI Pension Fund |
|
3-year |
13.50 |
UTI Retirement Solutions |
|
5-year |
11.90 |
HDFC Pension Fund |
Table No. 6 Pension Fund Managers
|
Average |
Highest Variance |
Lowest Variance |
|
HDFC Pension Fund11.33 |
Aditya Birla Pension Fund 14.96 |
ICICI pension fund 3.07 |
|
UTI Retirement Solutions 10.45 |
UII Retirement Solutions 7.19 |
Kotak Mahindra pension fund 3.14 |
Table No. 7 ANOVA for NPS Tier II
|
Source of Variance |
SS |
df |
MS |
F |
P-value |
F-crit |
|
Rows |
201.18 |
7 |
28.74 |
6.97 |
0.0002 |
2.48 |
|
Columns |
53.05 |
3 |
17.68 |
4.29 |
0.0164 |
3.07 |
|
Error |
86.55 |
21 |
4.12 |
|
|
|
|
Total |
340.79 |
31 |
|
|
|
|
As the calculated value (6.97) is greater than critical value (2.48) at the 5% level of significance in the table no. 2, the null hypothesis (H01) is rejected, and hence, it can be concluded that there is a significant difference among pension fund managers. Similarly, As the calculated value (4.29) is greater than critical value (3.07) at the 5% level of significance in the table no. 2, the null hypothesis (H01) is rejected, and hence, it is concluded that there is significant difference among time periods with respect to its return.
Table No. 8 NPS Tier-II Equity Fund Return
|
Term |
Best Returns |
Pension Fund Manager |
|
6-month |
9.29 |
Kotak Pension Fund |
|
1-year |
9.71 |
SBI Pension Fund |
|
3-year |
14.87 |
HDFC Pension Fund |
|
5-year |
11.96 |
UTI Retirement Solutions |
CONCLUSION:
National Pension System is new and market based scheme in India. It is regulated by adequate institutions with consist of emerging pension fund managers in India. Although this scheme has risk factors yet it gives best return other than investment avenues. The Contributed amount is invested for return instead of saving in account as a previous pension scheme. Overall, HDFC Pension Fund is the Best Performer in NPS Tier I and Tier II as compared with UTI Retirement Solutions and SBI Pension Fund.henceforth it will be increased the investment in NPS by public particularly Tier I and Tier II.
REFERENCES:
1. Ananth and Balanga Gurnathan (2016), Performance of National Pension Scheme in India, IJRCM, Vol.6, pp 13-16.
2. K. Spremann and Pascal (2000). Approaches to Modern Performance Measurement . Journal of Portfolio Management.
3. S.P. Kothari, Jerold B. Werner (2005) “ Evaluation Mutual Fund Performance”
4. Bijaya Kumar Barik (2015) “ Analysis of Mutual Fund Pension Schemes and National Pension Schemes (NPS) for Retirement Planning “ International Journal of Business and Administration Research Review, Vol. 3 Issue II, July-Sep 2015, page no. 108.
5. Vani Kamath and Dr. Roopali Patil (2017) “ Cost Benefit Analysis of National Pension Scheme” “ International Journal of Management, volume 8, Issue 3, May-June 2017, page no. 156-158
6. Anita and Pankaj Kumar (2014) “ National Pension System Swavalamban Scheme” “ Asian Journal of Multidisciplinary Studies, volume 2, Issue 7 July 2014.
7. Krishna Murari (2020) “ Risk-adjusted Performance Evaluation of Pension Fund Managers under Social Security Schemes (National Pension System) of India., Journal of Sustainable Finance and Investment.
Received on 17.08.2021 Modified on 19.09.2021
Accepted on 14.10.2021 ©AandV Publications All right reserved
Res. J. Humanities and Social Sciences. 2021; 12(4):205-208.
DOI: 10.52711/2321-5828.2021.00035