With the National Pension System (NPS) of the government of India gaining popularity among NRIs, the scheme has been extended to include Overseas Citizen of India (OCI) cardholders.
The government of India recently notified that OCI cardholders are included in the NPS.
With this, OCI cardholders can also subscribe to NPS in parity with NRIs. Reserve Bank of India will suitably amend and notify the relevant rules under the Foreign Exchange Management Act (FEMA), according to Indian Consulate General in Dubai.
The NPS is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.
It seeks to inculcate the habit of saving for retirement in an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India, including the NRIs.
OCI cards are issued to foreign citizens of Indian origin, which offer them a multipurpose, multiple entry, and lifelong visa allowing them to visit India at any time, for any length of time and for any purpose.
The OCI cardholders are exempted from police reporting for any length of stay in India. They have also been granted all rights in the economic, financial and education fields in parity with NRIs, except the right to acquisition of agricultural or plantation properties.
Sajith Kumar KP, chief executive officer and director of IBMC International, a fund advisory firm based in Dubai, said: “NRIs do not enjoy pension or annuity programmes in their host countries. Though the UAE had plans to introduce a pension scheme for all employees, the same has not been implemented so far. Naturally, the NRIs have to secure their future after returning to their country.
“The pension scheme is a suitable one, though the returns may not be as attractive as investments in mutual funds or other instruments.”
Retirement income for all citizens
The Government of India established Pension Fund Regulatory and Development Authority (PFRDA) in 2003 to develop and regulate pension sector in the country. The NPS was launched with the objective of providing retirement income to all the citizens. Later, in 2015, the NPS scheme was opened to NRIs.
Under the NPS, individual savings are pooled into a pension fund which are invested by the regulated professional fund managers as per the approved investment guidelines into the diversified portfolios comprising government bonds, bills, corporate debentures and shares.
These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
Easy exit norms
At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a designated life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
A flexible NPS offers a range of investment options and choice of pension fund manager for planning the growth of investments in a reasonable manner and see the money grow.
Individuals can switch over from one investment option to another or from one fund manager to another subject to certain regulatory restrictions. The returns are totally market-related.
Under the scheme, NRIs have option to select pension fund manager and exercise investment choice under NPS All Citizen Model. The fund is invested by the selected pension fund manager in the various classes of securities, as per the investment guidelines prescribed by the pension authority.
The investment is usually in equities, corporate bonds and government securities. The individual subscribers have a choice of selecting investment mix as per their risk appetite.
Source of contributions
The contributions made by NRIs can be from NRE (non-resident external) account or NRO (non-resident ordinary) account subject to normal foreign exchange conversion norms.
When the pension or annuity is to be paid, it shall be in INR only. However, there is no restriction on repatriation of pension, whether paid as annuity or in lump sum.
Provisions of Income Tax Act, 1961 subject to amendments from time to time, would be applicable. Exit and withdrawal rules for NRIs are the same as that for resident Indians.
