As a Government nominated Point of Presence (PoP), we are pleased to announce that CAMS is pioneering the movement of individuals switching from the EPF to the NPS system in India. While this switchover is imminent, here’s what you need to know about the change.
In March 2015, during the new Government’s first budget presentation, Finance Minister Arun Jaitley revealed the idea to implement a centralised pension plan, also known as the NPS or the National Pension System in lieu of the ongoing Employee Provident Fund (EPF). It promised to be a simpler, more transparent, portable and regulated system than the current one, while its supervision would be undertaken by the Pension Fund Regulatory and Development Authority (PFRDA). This move highlighted the need for the working class to make this switch in order to facilitate a better and more organised growth graph for the pension market.
The current Employee Provident Fund option is a scheme that is provided to all salaried individuals in the country. It means that when you start working, you and your employer both contribute 12% of the basic salary (plus dearness allowances, if any) into your EPF account. The entire contribution goes into this account along with 3.67% (out of 12%) from your employer, while the remaining 8.33% from your employer is diverted into your EPS (Employee’s Pension Scheme).
For example, if minimum pay for an employee is above INR 6500 per month, the employer can only contribute 8.33% of INR 6500 (INR 541) to their EPS and the balance goes into the EPF account.
With NPS on the other hand, a portion of an employee’s salary is accumulated in an individual pension account called PRAN (Permanent Retirement Account Number) using points of presence, a central recordkeeping agency, and pension funds as specified in Government norms. A PRAN number is unique to each individual and remains with them throughout their life. NPS accounts are structured into 2 tiers, namely:
Tier-I Accounts: These are non-withdrawable where any contributions made are deposited and invested according to the scheme the subscriber opts for.
Tier-II Accounts: A voluntary withdrawable account, which is allowed on the basis of a Tier I account already existing in the name of the individual. Withdrawals can be made as per the needs of or claims made by the subscriber.
Monthly contribution to the EPF is mandatory, whereas NPS provides employees with an option to opt out of the contribution clause.This leaves them with more disposable income at the end of each month. While both schemes are aimed at provision of retirement benefits to every employee, NPS offers a more convenient and tax benefiting option to the subscriber than EPF. It is also advisable to keep in mind that, once this switch is made, the NPS system allows an individual to shift back to the EPF plan only once, and without the availability of the perks attached to either scheme.
Computer Age Management Services (CAMS) is India’s premier Mutual Fund Transfer Agency serving over 62% of assets of the industry across 16 Mutual Funds. As of today, we accept service requests 6 days a week across all our platforms for individuals opting to make this switch.