The New Pension Scheme for civil servants is set to cross the critical milestone of one million members soon?with Uttar Pradesh deciding to join the common architecture for the scheme set up by the Centre. The central recordkeeping agency for the scheme, National Securities

Depository Limited (NSDL), is required to bring down its account maintenance costs by 20%, once the number of workers under the NPS crosses a million.

The decision, taken by the Mayawati-led state cabinet in late November, would ensure that the NPS gathers critical mass required to bring down costs and attract more workers into its fold. With nearly a fifth of the country?s population and the highest number of Lok Sabha constituencies, Uttar Pradesh has the largest bureaucracy in India with nearly 1.5 million employees.

Significantly, unlike the 19 other states that have signed up for NPS, UP has made the NPS mandatory for government as well as autonomous bodies? employees who joined after April 1, 2005, while giving an option for workers who have completed less than 10 years of service to switch to NPS.

?The state government had decided to move from a pension regime of defined benefits to defined contributions in March 2005, but has only now made up its mind about bringing its employees under the NPS architecture set up by the Pension Fund Regulatory Development Authority (PFRDA),? a senior government official told FE.

The PFRDA has already appointed three fund managers and a central record-keeping agency (CRA) for the NPS, who are already managing the savings of around 3.5 lakh central government employees. This number is expected to touch nearly a million, largely thanks to UP?s decision.

The million members? milestone is important for the NPS as it will not only give the fund managers? more money to invest, but also help bring down costs dramatically and induce more states as well as individuals to join the scheme. The PFRDA is working on opening up the NPS to all citizens by April 1, 2009.

As per its contract with the PFRDA, the NSDL will bring down its annual account maintenance charges from Rs 350 per employee to Rs 280 per employee as soon as the number of accounts touches a million. The CRA cost has been a bone of contention for a while now, with some states like Rajasthan who had agreed to join the NPS, threatening to set up their own CRA if costs are not brought down.

While the Centre is bearing this cost on employees? behalf, individuals who join the NPS voluntarily after April 2009 will have to pay the CRA cost themselves. Five states?Andhra Pradesh, Chhatisgarh, Jharkhand, Bihar and Haryana? have already signed contracts with the CRA and are working towards transferring their new workers? retirement corpus and contribution records to the NPS.

Apart from UP, the union territory of Puducherry has also recently joined the NPS. Arunachal Pradesh is set to become the first north-eastern state to come under the NPS though it has sought some clarifications from the Finance Ministry. After playing hardball for a few months, now Rajasthan has also begun fresh talks with the CRA and may sign the dotted line soon.