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National Pension System: What happens if you fail to choose NPS fund manager?

Amitava Chakrabarty
National Pension System, NPS, New Pension Scheme, old pension system, defined contribution system, defined benefit system, retirement corpus, retirement savings, equity, corporate bonds, governemnt securities, pension fund managers

Launched in 2004 to provide pension to government employees, who joined their services after December 31, 2003, National Pension System or NPS (earlier known as New Pension Scheme) is a low-cost and tax-efficient investment product to accumulate retirement corpus.

Unlike the defined benefits under the old pension system of the government, NPS is a defined contribution system where employees make mandatory contributions as deductions from their monthly salary, with the employer also making matching contribution (the Central Government, however, is now making 14 per cent contribution as against 12 per cent contribution by its employees).

From 2009, apart from the government employees, the door was opened for the general public to avail benefits of NPS.

As NPS is meant to provide retirement benefits, it is a closely monitored investment system with investors having flexibility to choose different investment options.

Broadly, investors may go for either Auto Choice or Active Choice. While, under the auto choice, the management of investment of funds is done automatically based on the age profile of the subscriber-with decrease in proportion of equity with increase in age, under Active Choice, subscribers have to decide on the asset classes-Asset class E (equity), Asset Class C (corporate bonds), and Asset Class G (government securities)-in which the contributed funds are to be invested and their percentages.

Apart from choosing investment avenues, subscribers need to choose the fund managers as well while opening their NPS accounts.

At present, a subscriber may choose any one of the following 8 pension fund managers:

  1. DSP Blackrock Pension Fund Managers
  2. HDFC Pension Management Company
  3. ICICI Prudential Pension Fund
  4. Kotak Mahindra Pension Fund
  5. LIC Pension Fund
  6. Reliance Capital Pension Fund
  7. SBI Pension Fund
  8. UTI Retirement Solutions Pension Fund

So, while opening an account, you need to choose the fund manager, who you want to manage your NPS money. But what would happen if you fail to choose a pension fund manager (PFM) while opening the account?

According to the Pension Fund Regulatory and Development Authority (PFRDA), there is a default PFM provision under NPS and SBI Pension Funds Private Limited acts as the default Pension Fund Manager.

Hence, by default, SBI Pension Fund will manage your contributions to NPS, if you don’t select the preferred fund manager.