Planning For Retirement: How The New Pension Scheme Will Work
- 1. From April 1, 2009, it's open to anyone who can deposit at least Rs 6,000/annum, and isn't a government employee.
- 2. Deposit the money in 23 banks, mutual and insurance firms—dubbed ‘points of presence’ or POPs.
- 3. Choose between six fund managers and three investment options, from low to high risk. Returns depend on fund performance and are not guaranteed.
- 4. You get a Permanent Retirement Account Number (PRAN) card, which will be portable across the country and jobs. Account details online or via call centre.
- 5. Deposited money routed to fund managers, which will invest funds and generate an NAV.
- 6. You can switch between fund options and fund managers. Can withdraw from the scheme if critically ill or buying first house.
- 7. After 30 years (or maximum age of 60), pick up lump-sum amount. But it's taxable—unless you invest in an annuity outside the scheme.
The Six Fund Managers
- ICICI Prudential Life
- IDFC
- Kotak Mahindra
- Reliance Capital
- SBI
- UTI
Investment Types
- Type ‘E’ High return, high risk: largely equity
- Type ‘G’ Low return, low risk: chiefly in govt bonds
- Type ‘C’ Moderate risk: largely credit-rated bonds and fixed income instruments
- Auto Choice Default option, pre-set allocation based on age
What’s Right
- Cheapest pension scheme compared to MF/insurance retirement products.
- Social security net for self-employed, even those not covered by EPF schemes.
- Flexible, as you can switch between fund managers and risk options.
- Has default investment option, allows withdrawals in special circumstances.
- Transparent, can track what your retirement kitty looks like.
And What’s Not
- Doubts over whether investors are savvy enough to make choices.
- Minimum annual deposit amount eliminates a large chunk of population.
- Will compete with MF/insurance pension products that are aggressively sold.
- Unlike PPF, NPS funds are taxable at maturity—unless invested in an annuity.
- Implementation woes, pension regulator’s powers not clearly defined.
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