Pension for all, up & running from May 1

Pension for all, up & running from May 1 Gaurav Pai Mumbai Posted On Monday, March 30, 2009 at 12:44:21 PM The New Pension Scheme (NPS) will finally be opened up to the organised and unorganised sector from May 1 this year. The launch plan for the scheme, scheduled originally for April 1, had been put on hold as the pensions regulator — the Pension Fund Regulatory and Development Authority (PFRDA) — waited for a clarification from the Election Commission as to whether it could go ahead, considering the initiative will start right in the middle of the polling process. The EC has informed PFRDA that it can go ahead with the launch of the scheme —which has so far been open only to government employees — a senior official with knowledge of the development said. The move has been welcomed by pension sector experts, who said PFRDA was finding it tough to complete the information campaign necessary before its roll-out. The campaign will now be launched in April through television, radio and print advertisements. Experts feel the NPS — which aims to provide retirement benefits to even the neighbourhood grocer and plumber — will not take off unless massive awareness is generated through the media

New pension scheme from May 1

Published on Sat, Apr 11, 2009 at 11:26 , Updated at Sat, Apr 11, 2009 at 17:16 Source : CNBC-TV18 The much awaited new pension scheme (NPS) will kick off from May 1. It promises to change the face of the pension market in India. The new pension scheme has something to offer for all investors. If an investor wishes, he can choose even his investment strategy and fund manager. So how does it work? A new pension scheme - Bank branches and post offices to collect contributions - 6 pension fund managers appointed - Central record keeping agency appointed - Scheme is portable across jobs and locations Existing bank branches and post offices will be used to collect contributions. Six pension fund managers will devise schemes and manage funds. A central record keeping agency has also been appointed. All these institutions will be regulated by an independent regulator, the Pension Fund Regulatory and Development Authority (PFRDA). The biggest advantage is the scheme's portability across jobs and locations. D Swarup, Chairman, PFRDA, said, "There is a lot of flexibility. Whenever you wish to make a contribution you are allowed to do so. If you skip a month it doesn’t matter. If you skip two months it doesn’t matter. As long as there is a minimum, which we will put as annual contribution. Lastly, the costs are low." Charges The charges for the new pension scheme are likely to be 15 to 20 paise per Rs 100 which is much lower, compared to pension schemes by mutual funds or insurance companies. Investment Strategy - Three asset classes likely - E category: Equity (high risk, high returns) - G category: G-Secs (low risk growth option) - C category: Corporate bonds (medium risk conservative option) The investment norms are yet to be clearly defined. However, it is likely that there will be three asset classes. E, G and C categories. The disadvantage - the tax effect - EET (exempt-exempt-taxed) Category: Taxable on withdrawal - Funds like PPF and EPF are tax free The NPS falls under the exempt-exempt-taxed or EET category. This means that the corpus is taxable during withdrawals. This makes the scheme less attractive because other schemes like the PPF and EPF are tax free on maturity. Sources say there is an effort being made by PFRDA to make the NPS completely tax free on par with other schemes. Returns are not guaranteed. But experts say that one could expect equity returns to be about 15 to 17% annually over a period of 7 to 10 years and 6 to 8% from the growth option.

New pension scheme

The Pension Fund Regulatory and Development Authority (PFRDA) will issue investment guidelines, as recommended by the Deepak Parekh Committee, for its mega new pension scheme (NPS) by the middle of this month. “Investment guidelines will be finalised by the middle of the month (April)... May 1 is the date it (pension scheme for all citizens) will be launched,” PFRDA Chairman D Swarup said. The authority is set to launch the pension scheme for all citizens from May 1 after it receives approval from the Election Commission. The committee had suggested to subscribers to invest in the shares of the 50-stock National Stock Exchange’s Nifty, government bonds, liquid assets of mutual funds, state government bonds, rated bonds of public financial institutions and public sector companies, among other things. PFRDA has invited public comments on the recommendations, as well as certain modifications proposed by it to these suggestions. In August 2008, the government advised PFRDA to extend the scheme, currently subscribed to by government employees, to all citizens. Central government employees who joined service on or after January 1, 2004, are covered under the NPS. Unlike the old pension scheme, in the NPS both the employees and the employer (in this case, Government) contribute an equal amount to the pension fund. Twenty-one states have also joined the scheme. However, the NPS for all citizens will not have any mandatory obligation for employers to give matching contributions to the pension fund. When asked about the corpus expected from citizens, Swarup said unlike in respect of the central and state governments, this scheme is voluntary and it would be difficult to predict the growth of the corpus. He, however, pointed out that a survey conducted by an independent organisation, Invest India Micro Pension Services (IIMPS), said that in the next five to seven years, eight crore people will join the scheme.