ACKNOWLEDGEMENT

There are competent and indefatigable lecturers and guides, who bestow their fortune upon students, particularly in respective field. Words are often too weak to express the inner feelings.

I am really thankful to my teacher Mr. Vishwas for his guidance and full co-operation in preparation each and every part of this term paper. He told me a different idea which has helped me in preparing this term paper. Without his support this report would have been a dream. I am really honoured working with him. Also my friend Parambir helped me a lot.

Brief Contents
No. Topic Name Page No.

Topic 1

Introduction (NPS)

4

Topic 2

Benefits Of NPS

7

Topic 3

Literature Review

8

Topic 4

Country-wise comparison of pension systems for select South Asian countries

12

Topic 5

Hypotheses

16

Topic 8

Research methodology

17

Topic 9

Conclusion, limitations and recommendations

18

Topic 10

References

19

NEW PENSION SYSTEM (NPS)
The New Pension System is a defined contribution based Pension system, launched by government of India with effect from January 1, 2004. It is based on a unique individual Permanent Retirement Account Number (PRAN) created for individual subscribers between 18-60 years of age.

Apart from offering wide range or scope of investment options to employees, this scheme would help Government of India to reduce its pension liabilities. Unlike existing pension fund of Government of India that offered assured benefits, NPS has defined contribution and individuals can decide where to invest their money. This scheme is structured into two tiers: • Tier-I account: This NPS account doesn’t allow premature withdrawal and is 1 May, 2009. • Tier-II account: The tier-II NPS account permits withdrawal available from

REGULATOR Pension Fund Regulatory and Development Authority (PFRDA) is the prudential regulator for the NPS. PFRDA was established by the Government of India on 23 August 2003 to promote old age income security by establishing, developing and regulating pension funds. PFRDA has set up a Trust under the Indian Trusts Act, 1882 to oversee the functions of the PFMs. The NPS Trust is composed of members representing diverse fields and brings wide range of talent to the regulatory framework.

COVERAGE AND ELIGIBILITY NPS would be available to all citizens of India on voluntary basis and mandatory for employees of central government (except armed forces) appointed on or after 1 January 2004. All Indian citizens between the age of 18 and 55 can join the NPS. Tier-I is mandatory for all Govt. servants joining Govt. service on or after 1.1.2004. In Tier I, Govt. servants will have to make a contribution of 10% of his Basic Pay, DP and DA which will be deducted from his salary bill every month. In addition to the above pension account, each individual can have a voluntary tier-II withdraw able account at his option. Government will make no contribution into this account. These assets would be managed in the same manner as the pension.

OPERATIONAL STRUCTURE NPS is designed to leverage existing network of bank branches and post offices to collect contributions and ensure that there is seamless transfer of accumulations in case of change of employment and/or location of the subscriber. It offers a basket of

investment choices and Fund managers. The key terms to understand the working of NPS are as follows:

Central Record Keeping Agency It would maintain records of all contributions and transaction details of subscribers. It will also have the mandate to effect client instructions regarding switching from one fund to another or from one scheme to another of the same fund.

Permanent Pension Account Number (PPAN) A unique 16 digit Permanent Pension Account Number would be allocated to each new subscriber for the Permanent Pension Account (PRA). Subscribers can retain their PRAs when they change jobs or residence, and even change their fund managers and the allocation of investments among the different asset classes. Pension Fund Managers (PFM): PFRDA has appointed PFMs to manage the savings corpus under NPS.

Contribution Guidelines The following contribution guidelines have been set by the PFRDA:  Minimum amount per contribution: Rs. 500 per month  Minimum number of contributions: 4 in a year (at least 1 in each quarter)  Minimum annual contribution: Rs 6,000 in each subscriber account. If the subscriber is unable to contribute the minimum annual contribution, a default penalty of Rs.100 per year of default would be levied and the account would become dormant. In order to re-activate the account, subscriber will have to pay the minimum contributions, along with penalty due. A dormant account will be closed when the account value falls to zero.

Investment Options

Under the investment guidelines finalized for the NPS, pension fund managers will manage three separate schemes, each investing in a different asset class. The subscriber will have the option to actively decide as to how the NPS pension wealth is to be invested in three asset classes: 1. E Class: Investment would primarily in Equity market instruments. It would invest in Index funds that replicate the portfolio of either BSE Sensitive index or NSE Nifty 50 index. 2. G Class: Investment would be in Government securities like GOI bonds and State Govt. bonds 3. C Class: Investment would be in fixed income securities other than Government Securities.

Investment Charges NPS levies extremely low Investment management charge of 0.00009% on Asset under management. This is extremely low as compared to charges levied by mutual funds or other investment products. Initial charge of opening the account would be Rs. 470. From second year onwards the minimum charge would be Rs. 350 a year.

Withdrawal Norms If subscriber exits before 60 years of age, he/she has to invest 80% of accumulated saving to purchase a life annuity from IRDA regulate life insurer. The remaining 20% may be withdrawn as lump sum. On exit after age 60 years from the pension system, the subscriber would be required to invest at least 40% of pension wealth to purchase an annuity.

Tax Treatment The offer document of NPS does not specify the tax benefits in elaborate manner. It specifies “Tax benefits would be applicable as per Income Tax Act, 1961 as amended from time to time.” As per current provisions, withdrawals under the NPS attract tax under the EET (exempt-exempt-taxable) system, which means that while contributions and returns to the NPS are exempt up to a limit, withdrawals would be taxed as normal income (EET).

Past Investment Returns

The NPS architecture has been managing money since April 2008. Rs.2100 crore is invested as corpus of Central Government employees. In 2008-09, as per unaudited results of the Pension Funds, the average weighted return on the corpus have been over 14.5% with the individual returns of three Pension Funds varying from 12% to 16% on the NPS corpus during the year 2008-09, weighted average return being over 14.5 per cent.

BENEFITS OF NEW PENSION SYSTEM 1. There is immense scope to widen the pension-net, based on the life-cycle of the subscriber as the average age of Indians is currently 26 years. 2. The present coverage rate is also lower. The formal pension system covers only 11% of workers, while 89% workers still remain uncovered. 3. The current defined benefit (DB) pension system for civil service has become financially unviable for the central and state governments. As against this, the NPS is a funded defined contribution (DC) pension system with greater possibilities, to expand pension coverage. Moreover, pension fund as an institutional investor, supports the financial intermediation, facilitates resource transfer, provide better trade-off between risk and return. It also supplies resources to various segments of the market through strategy of diversified investment process, manages uncertainty and gives price information. As pension funds will invest mostly in long-term asset classes; it will give a fillip to development of bond market and help financing infrastructure needs. The non-banking financial sector, deprived of deposit sources, will find an alternate route for raising resources through bonds.

4.

5.

6.

LITERATURE REVIEW

Research makes a man forward in search of truth. Every research begins from where the previous researches have left it and goes forward. Therefore every research it is essential to acquire him with what has already been thought expressed and done about the problems under investigation. This is possible only if he studies review surveys, books, journals, newspapers, documentary. These abstracts and other sources of information directly or indirectly connected with this problem of investigation. For this research researcher has gone through different journals and other research works. The related studies are presented below:

Joseph Mariathasan (2006) has told that India is starting a new pension system which is used as a social security as all the people will be benefitted by this new pension system. Its growth and development is set to have a profound impact on India's capital markets as well as providing security in old age to a population seeing unprecedented changes in social structures as economic growth takes off.

Benjamin and Sachi (2006) discuss about new pension which consist of two tier account. They have forced savings advocated by World Bank by allowing cross subsidies. The Swiss and Australian retirement system is also based on the pension system of the India.

ARTICLE REVIEW

1. Eves (2010) has discussed that the worldwide demographic problems of

increasing longevity have made many state-sponsored schemes increasingly untenable on grounds of cost. This has been exacerbated by the effects of the worldwide economic crisis. In this article different issues, and different innovative approaches of countries such as Australia, India, Chile, and New Zealand are seen and different solutions are offered to these problems. Changes in pension age are the most common feature of reform packages. Recent reforms have reversed the trend to lower pension eligibility ages, with 10 countries introducing gradual increases in pension ages for both men and women. When studying pension systems, it is important to have knowledge of consumer attitudes -- particularly their attitudes toward taking on risks. It is particularly important that insurers

continue to invest in skills to assess the future, identifying new and emerging risks. Consumers expect risk managers to understand what future risks look like and advise customers accordingly on what they need to do to prepare for it.

2. Miksa (2008) says that a crucial development in Asian pensions has been

the rise of DC plans. Since 2000, new DC schemes have been introduced for various target groups in China, Hong Kong, India, Japan, South Korea and Taiwan; Thailand also plans to launch a DC system in 2008. In Australia and Singapore, DC schemes have been in place for longer. In Thailand and India, reforms were introduced to replace financially unsustainable schemes for civil servants with a more calculable DC system. In Japan and Korea, the newly introduced DC schemes aimed to increase employer choice and modernise the company pension system. The rise of funded pensions of the DC type has fuelled asset growth. Allianz Global Investors/Allianz Dresdner Economic Research projections foresee that in coming years, pension assets in Asia- Pacific as a whole will see annual growth of 9.2 per cent, from Euros 1,407.5bn to Euros 3,116bn in 2015.

3. Bonin (2009) discussed that the state of the German pension system after

a sequence of reforms aimed at achieving long-term sustainability. They argue that the latest reforms have moved pension provision in Germany in principle from a defined benefit to a defined contribution scheme, and that this move has stabilised pension finances to a large extent. They furthermore argue that the real economy consequences of the global financial crisis create threats to the core success factors of the reforms – cutting pension levels and raising mandatory pension age. Finally the article discusses further possible reform measures, including the option to install a fourth pillar, providing income in retirement through working after pension age.

4. Lindquist and Wadenjso (2009) say that most countries including Sweden

have an ageing population. The costs of the welfare state increase with the old age share, leading to problems for public finances. If the number of hours worked increases, tax revenues increase and less income transfers are paid out. A higher retirement age is one way to increase the numbers of hours worked in the economy. The age when people leave the labour market has already increased in Sweden. The new pensions system is part of the explanation but improved health and changes in the educational level of the cohorts close to retirement are also important. The problem of financing the welfare state is however not solved by that development. The

article is concluded by discussing changes in laws and collective agreements which may contribute to further increases in the actual retirement age.

5. Goswami (2002) discussed the current state of the Indian pension system.

The Indian experience could potentially influence policy decisions in other developing countries, especially those with similar reliance on the national provident fund system. Institutional features of various retirement benefit schemes are highlighted and their deficiencies are discussed. It is argued that low coverage level, underperformance of provident fund schemes due to investment restrictions, and financial difficulties in administering unfunded public pension programmes have rendered the current system ineffective and unsustainable. The failed experiments with ad hoc reform initiatives in the recent past further emphasize the need for a structural and lasting change. The paper concludes with some policy directions for reforming the Indian pension system.

6.

Shao (2010) says about the challenges facing the New Public Service Pension Fund System in Taiwan, China. After less than two decades of operation, this young system is facing financial imbalance and is embroiled in controversy regarding the generosity of its benefits provisions. The article first introduces Taiwan's different systems for old-age security, with a focus on that for general public-sector employees. It then addresses the financial challenges facing the general public-sector pension system, including the rising cost of its benefits for all taxpayers. Finally, a number of possible reform directions are suggested, including lowering benefit levels, making qualifying criteria more stringent, or establishing a new system. With regards to the latter, any proposed new system must seek to satisfy the goal of longer-term financial soundness while realizing optimal fairness among all stakeholders including taxpayers.

7. Blake and Turner (2007) discussed a Social Security reform approach that

creates substantially new structures such as voluntary carve-out accounts, it is important to apply what we already know about the functioning of pension systems and their effects on workers rather than analyzing an idealized form of the proposed system. This article describes the United Kingdom's experience with voluntary carve-out accounts, including the system's numerous difficulties. Among the many problems are "misselling," high administrative costs and fundamental difficulty determining

the appropriate offset between the reduction in the worker's payment to Social Security and the reduction in that person's Social Security benefits

8. Culter (2003) discussed that one of the most detailed continuing surveys of

the financial behaviour of American consumers is the Survey of Consumer Finances (SCF) sponsored by the Board of Governors of the Federal Reserve System. The survey is designed to provide detailed information on U.S. families' balance sheets and their use of financial services as well as on their pensions, labour force participation and demographic characteristics at the time of the interview. This article is based on the elaborate analysis of the SCF done by Craig Copeland, senior analyst at the Employee Benefit Research Institute. Tables constructed from EBRI's analysis of the 2001 SCF aptly demonstrate the need for more, and more literate, financial planning. The financial complexities faced by today's middle class families, and their own responsibility for the future value of IRA and similar personal pension accounts, suggests that the involvement of financial professionals is not simply a matter of "having enough money to invest."

9. Eeckhaut (2005) says that in Belgium, as in many other European countries, declining birth rates and ageing populations are making the financing of pensions one of the most critical economic and political challenges for the coming decades. In order to cope with this financial burden, the Belgian government has recently introduced measures, and will introduce further measures, to widen the scope of pension financing instruments. This article provides a general overview of the most important changes to the Belgian social and tax law aspects of supplementary pensions as introduced by the Law of 28 April 2003 on supplementary pensions.

10. Doman and Freeman (2006) discussed that in Britain, pension reform has been a long-running political saga. In America, reform of social security has been on and off the political agenda. Increasing longevity has featured in the debate just about everywhere. Unfortunately, most headlines have been negative. Pensions systems are seen to be in crisis. People are living longer but are also running out of savings and so cannot afford health

care. Companies are scrapping defined-benefit pensions and putting more onus on individuals to provide for their own income in retirement. Governments are rolling back old-age welfare systems that have become more expensive as populations in the developed world have failed to reproduce. Responsibility for the financial risk of the lifecycle is being transferred back to the individual. It is a thoroughly gloomy picture and tempting to imagine there are no positives for financial companies. This article discusses several product and services strategies that are well adapted to the new retirement market and look set to alter companies' behaviour.

COUNTRY-WISE COMPARISON OF PENSION SYSTEMS FOR SELECT SOUTH ASIAN COUNTRIES
India Pakistan Currently three schemes exist catering to the group. The Employee Old Age Benefit Institution (EOBI) scheme applies to companies employing more than 10 workers. The two other schemes are Pension and provident fund benefits for other companies and Voluntary pension scheme. Sri Lanka Bangladesh

Two schemes, namely the Employees' Pension Scheme for Scheme and the Private Sector Employees' Workers Provident Fund scheme cater to this group.

In the formal private sector schemes like Employee Private Fund, Employee Trust Fund and Approved Private Sector Provident No uniform Fund exist. The self retirement benefit employed workers scheme have Farmer's Pension Scheme, Fisherman's Pension Scheme and Pension Schemes for Self Employed Workers

Indexation

Formal pensions are inflation indexed in the form of Discretionary Dearness Allowance apply and/or Dearness Pay.

rules

Not applicable

Not applicable

Rs.41811 (PCI in Average 2004-05 prices) Earnings in the ($1=47 Indian Rs. Economy approx) For the Civil Service Pension Scheme and the Public Sector Bank Pension Schemes the normal age for retirement is 60 years. In comparison, the qualifying age for the Employees' Pension Scheme is a little lower at 58 years and higher under the National Old Age Pension scheme at 65 years.

Rs. 43748 (PCI in market prices) USD 3141 (PCI in USD 363 (PCI in ($1=60 Pakistan Rs. 2002 prices) 2002 prices) approx.)

Qualifying Conditions

The normal pension age for civil service pension and EOBI is 60 years. Retirement age is voluntary for the other two schemes.

For all schemes the the normal pension age stands at 60 years. However, the earlier Public sector pension scheme has been replaced with Contributory Pension Fund(CPF) for public sector employees joining after January 2003

The scheme caters only to civil servants and railway employees. A government employee retires at 57 or voluntarily after the completion of 25 years of service, whichever comes first.

First Tier Schemes 1) Basic N.A. Pension The minimum levels of pension per month are Rs. 1275 under the Civil Service pension 2) Minimum scheme. For other Pension schemes either no minimum level exists or is entirely based on the date of retirement.

N.A.

N.A.

N.A.

A minimum pension level of 40% of last Under the EOBI a salary exists for minimum of Rs. government N.A. 1000 a month is employees who have paid served for more than 10 years.

3)Targeted schemes/ social assistance

The National Old Age Pension Scheme pays N.A. Rs.200 to the poorest 30% of the BPL aged poor.

N.A.

Old age allowance pension is paid to 10 oldest and poorest members of each ward of the country.

2nd Scheme

Tier

1)Defined benefit

The Civil Service Pensions, Employees' Pension Scheme and the Public Sector Pension Scheme falls under this group

Prevailing defined benefit schemes are Civil service pension, Private sector pension and EOBI. The accrual rate of benefits depends upon age, years of service and average monthly wages earned in the last 12 months of service.

The prevailing schemes of this nature are Public Sector pension scheme, Farmer's pension scheme, Fisherman's pension scheme and pension scheme for the self employed workers. The number of years served and the salary at at retirement form the basis on which public sector pensions are given. Pensions for the self employed are, on the other hand, based on the age at enrolment.

The scheme applies only to government civil servants. The accrual rate for pension benefits depend primarily on the number of years served.

2) Point N.A. scheme

N.A.

N.A.

N.A.

The General Provident Fund and 3) Notional the Contributory account Provident Fund belong to this scheme type.

General provident fund for civil service employees (federal N.A. government and provincial government) exists.

There are two types of notional accounts, namely, General Provident Fund and Contributory Provident Fund

The Employees' Provident Fund (12%), the New 4) Defined pension scheme contribution (10%) and various plans occupational pension schemes are of the nature of defined contribution.

The Contributory provident fund scheme run by private companies are of this nature. Employees are required to contribute 5% to 10% of their basic salary.

Prevailing plans of this nature are Employee Provident fund (8%), Employee Trust Fund, No mandated Approved Private contribution plan Provident Fund (8%) and Contributory Pension scheme (8%) Early Retirement criterion requires 25 years of

Early and Late For the Employees' The eligibility age for N.A. Retirement Pension scheme the early retirement is age for early 55 for men and 50 retirement is 50

years. Other schemes are not for women. age specific. While employee’s contribution to Provident funds is deductible up to a maximum limit of 25000 p.a., the employer's contribution is exempted up to a maximum of 25% of taxable wages.

service

Taxes on Pension Funds are of the Personal nature of EET i.e., Income Taxes all contributions and and Pension investment incomes Contributions are exempted and all fund withdrawals are taxed.

Certain tax credits are given in respect of contributions or premium paid towards an approved pension fund under the Voluntary Pension System Rules, 2005.

Pension Income fully exempted from taxes. Additional standard reliefs are given for older people.

According to the above articles it has been shown that in different countries there are different pension systems. Like in different countries longevity has increased means age of both men and women have increased for the retirement. In Germany, pension plan is shifted from defined benefit to defined contribution scheme. In Sweden, as financial position is not good so they can’t pay their employee’s pension. So they have increased the age of retirement of the employees. In Taiwan, there are different systems for old-age security, with a focus on that for general public-sector employees and it has financial challenges facing the general public sector pension system, including rising cost of its benefits for all taxpayers. In Belgium, there is also financial burden. They are taking steps and widening their pension instruments such that employees can be paid relevant pension. In Britain, there is no better pension system that of India. Pension system is in crisis. People have to put their own income for the time of retirement as there is less finance. In Pakistan there are three schemes for private sector workers and in India there are only two schemes.

HYPOTHESES
With the help of above discussion it can be said that India has the best pension system in comparison with other country’s pension system as in other countries there is the lack of finance. Finance is also lacking also in India but then also employees are paid pension, so that they can also survive after finishing off their jobs. It can also be seen that still is importance is given to the employees who got retire.

RESEARCH METHODOLOGY

Research is an indispensable and innovative tool in leading society to progress and advancement without a systematic research, there would have been no or little progress. No progress can be made by trial and error method. But a systematic research and only those who are equipped with the related knowledge can conduct research. Research is valuable only when it brings an improvement of human spirit, intellectual force and moral fibre of those who search for advantages of knowledge. It is necessary to adopt and evaluate a systematic plan and procedure to collect essential data. Plan and procedure is very essential to collect factual material relevant, data, unknown and untapped so far, adequate in quantity and quality to save it from becoming heap of jumbled ideas gathered from here and there. It is the path which is followed by researcher to research the target. The scope of my study restricts itself to the new pension system of different countries. This study tells about the pension system of different countries and how India’s pension system is better than the pension system of other countries.

TIME PERIOD OF STUDY The present study was undertaken during the month of April, 2010.

RESEARCH TYPE This research is a descriptive one. As in this research it has been described about the new pension system of India and how this is helpful as the social security of India as in India there is not a better security system. Pension system of other countries has also been described with the help of some articles. Benefits and disadvantages have also been given.

DATA COLLECTION The data which is collected for the study is SECONDARY DATA. The data has been collected from different journals and from different sites like PROQUEST and SSRN (Social Science Research Network).

CONCLUSION

From the above research it can be said that India has the best pension system in comparison with the pension system of the other countries. In other countries there is financial problem so the employees get retirement at very old age so that the pension can’t be paid to them. Those countries feel it as a burden.

LIMITATIONS
1. The offer document does not explain how much an individual will be taxed. The scheme was launched under EET (exempt-exempttax) system owing to the government’s failure to take a decision on launching the scheme under EEE (exempt-exempt-exempt) system.

3. Neither does the government give any assurance as regards the security of capital fund and interest income, unlike other savings and retirement schemes like provident fund and National Saving Certificates (NSCs).

RECOMMENDATIONS
1. The document should explain that how much an individual will be taxed so

that they should come to know that much thx they will have to pay.
2. Government should give security of capital fund and interest income. So that

people should have trust on this pension system.

REFERENCES

1. Joseph, M. (2009) India’s Pension Fund Roadmap. London, Global Investor.

2. Avanzi, B., & Purcal, S. (2006) Forced Savings and Annuitisation With Cross

Subsidies: A Mutation of the Beast. Australia. New South Wales.

3. Eves, B. (2010) Reforming Pensions Worldwide: A Task Not Insuperable?

LIMRA International Winter 2010, 29 (1), http://proquest.umi.com/ (Accessed 3rd April 2010).

90.

Available

from:

4. Miksa, B. (2008) Pension Reform Good News for Asia-Pacific. London (UK):

Financial Times.

5. Bonin, H. (2009) 15 Years of Pension reform in Germany: Old Successes and

New Threats. Geneva Papers on Risk & Insurance, 34 (4), 548-561. Available from: http://proquest.umi.com/ (Accessed 5th April 2010).

6. Lindquist, G.S. & Wadensjo, E. (2009) Retirement, Pensions and Work in

Sweden. Geneva Papers on Risk & Insurance, 34 (4), 578-593. Available from: http://proquest.umi.com/ (Accessed 5th April 2010).

7. Goswami, R. (2002) Old Age Protection in India: Problems and Prognosis.

International Social Security Review, 55, 95-121. http://www.ssrn.com/ (Accessed on 10th April 2010).

Available

from:

8. Shao, A.J. (2010) The Public Pension System in Taiwan: Equity Issues Within

and Between Systems. International Social Security Review, 63 (1), 21. Available from: Available from: http://www.ssrn.com/ (Accessed on 10th April 2010).

9. Blake, D. & Turner, J. (2007) Individual Accounts for Social Security Reform:

Lessons from the United Kingdom. Benefits Quarterly, 23 (3), 56-62. Available from: Available from: http://www.ssrn.com/ (Accessed on 10th April 2010).

10. Culter (2003) Pension Complexity, the Middle Class, and Financial

Professionals: New Evidence from the 2001 Survey of Consumer Finances. Journal of Financial Service Professionals, 57 (6), 24. Available from: Available from: http://www.ssrn.com/ (Accessed on 15th April 2010).

11. Eeckhaut, R.V.D. (2005) Supplementary Pensions in Belgium: The New

System. European Taxation, 45 (6), 243. Available from: Available from: http://www.ssrn.com/ (Accessed on 15th April 2010).

12. Doman, A. & Freeman, A. (2006) Tapping Retirement. Financial World.

Canterbury.

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