Contributions, Portability and Points of Presence (Sections 20 and 22)

A pension system depends on a steady flow of contributions that follows the subscriber through life. The PFRDA Act secures this through two features of the NPS in Section 20(2): portability of the pension account, and the collection of contributions through points of presence. Section 22 provides for the registration and functioning of points of presence. This note explains who contributes, how much, how the money moves, and how the account travels with the subscriber.

1. Who Contributes and How Much

Central Government employees

• Employee: 10 per cent of basic pay plus dearness allowance, deducted from salary every month.
• Government: 14 per cent of basic pay plus dearness allowance, raised from 10 per cent with effect from 1 April 2019.
• Unified Pension Scheme: for employees who opt for the UPS from 1 April 2025, the Government's contribution is 18.5 per cent, part of which goes to a pool fund that supports the assured payout.

State Government employees

States that have adopted the NPS fix the contribution rates for their employees by their own decisions. Many follow the Central pattern of 10 per cent from the employee and 14 per cent from the State, though practice varies.

Corporate employees

Under the Corporate model, the employer and employee contribute as agreed between them. Employer contributions within limits set by the income tax law are deductible and are not taxed as the employee's income up to those limits, which makes the corporate NPS an attractive part of salary structures.

Individual subscribers

• Voluntary: under the All Citizen model, the subscriber decides how much and how often to contribute.
• Minimums: for Tier I, ₹500 at opening and ₹1,000 in each financial year; for Tier II, ₹1,000 at opening and no annual minimum.
• No maximum: there is no upper limit, though tax deductions are available only up to the limits in the income tax law.

2. How Contributions Move

1. The subscriber or employer pays the contribution through a point of presence, online through eNPS, or through the employer's nodal office.
2. The point of presence or nodal office uploads the subscriber details to the CRA and remits the money to the Trustee Bank.
3. The CRA matches the funds with the subscriber's PRAN and gives instructions to the Trustee Bank.
4. The Trustee Bank transfers the money to the pension funds chosen by the subscriber.
5. The pension funds invest according to the scheme, and the securities are held by the custodian. Units are credited to the subscriber's account.

The separation of these functions is deliberate. No single entity both holds the subscriber's money and keeps the record of it, which reduces the risk of misappropriation and makes each entity's performance easier to supervise.

3. Points of Presence (Section 22)

• Registration: a point of presence must hold a certificate of registration under Section 27(3), and must function in accordance with its terms and the regulations (Section 22(2)).
• Who acts as one: mainly banks, both public and private, and other financial entities such as non-banking financial companies and intermediaries registered with other financial regulators, which operate through their branches and online platforms.
• Functions: registering subscribers and verifying KYC; receiving contributions; receiving instructions such as changes of scheme or details; transmitting them to the Trustee Bank and CRA; and servicing withdrawal and exit requests.
• Charges: points of presence may charge subscribers only within the limits specified by PFRDA. Charging more is a violation that may lead to directions, penalties and, in serious cases, cancellation of registration.
• Conduct: points of presence must not mis-sell, must give accurate information about the NPS, and must have a grievance mechanism.

4. Portability

Portability is a basic feature of the NPS under Section 20(2). It means the subscriber's account and accumulated savings move with him, and are not tied to an employer, location or intermediary.

• Across employers: a subscriber who changes jobs keeps the same PRAN; the new employer simply begins contributing to it.
• Across sectors: a subscriber may move between the Government, Corporate and All Citizen sectors, for example when a Government employee resigns and joins a private company, through an inter-sector shift of the PRAN.
• Across locations: contributions can be made from anywhere in India, and by non-resident subscribers from abroad.
• Across intermediaries: a subscriber may change the point of presence and the pension fund, and, where permitted, the CRA, without closing the account.

Portability is one of the most important advantages of the NPS over older employer-based schemes. Under the Old Pension Scheme, a Government employee who left service early could lose pension rights; under the NPS, his accumulated savings remain his.

5. Retirement Advisers and Nodal Offices

• Retirement advisers: PFRDA registers retirement advisers to explain the NPS and help subscribers choose schemes, under its regulations on retirement advisers. They must act in the subscriber's interest and are subject to a code of conduct.
• Nodal offices: for Government subscribers, the drawing and disbursing office and other nodal offices deduct and upload contributions, and are responsible for doing so on time. Delays have been a recurring problem, and Government rules provide for compensation to employees for loss caused by delayed credit.
• Employers in the corporate model: the employer acts through a point of presence and is responsible for remitting both its own and the employee's contributions promptly.

6. Questions Arising

Can an employer stop contributing once a subscriber has joined?

For Government employees, the Government's contribution is a condition of service fixed by the Government's own rules, and cannot be stopped arbitrarily. For corporate employees, the employer's contribution depends on the terms of employment. In either case, the subscriber may continue contributing on his own, and the savings already made remain his.

Is a point of presence liable for delay in crediting contributions?

Yes. A point of presence must transmit contributions within the time specified by regulations. Delay that causes loss to the subscriber may be the subject of a grievance, a direction to compensate, and a penalty against the point of presence.

7. Related Topics and Provisions

• The National Pension System (Section 20)
• PRAN and Tier I and Tier II accounts
• Other intermediaries: Trustee Bank, custodian and retirement advisers
• Eligibility and registration of intermediaries (Sections 26 and 27)
• The Unified Pension Scheme