Pension Tension

fe Bureau
Posted: Sunday, May 03, 2009 at 2214 hrs IST
Updated: Sunday, May 03, 2009 at 2214 hrs IST

Font Size

Feedback

Discuss

Low-cost pension to cover 400 m workers

: A quite revolution of sorts has been ushered into the personal finance world when the new pension scheme or the NPS was also made open for all citizens of India who are not just government employees – retirement planning just got better for the nation.

“This makes life much easier for us executives of the private sector who really don’t have much to fall back on,” says Rakesh Jaria, a senior executive with a multinational in Mumbai. Similarly, Hari Kotian a restaurateur reckons that he will be able to sit peacefully and manage his business commitments better knowing that his retirement is taken care off.

Though it’s early days to fully evaluate the options as they unfold, the current offering too makes the new pension scheme an attractive option for retirement planning. Lokesh Nathany, national wealth management head with Almondz Global Securities, reckons, “This is excellent for all people within the private sector. It is good for a shop owner as well as a manager in a big corporate company. The only options people have currently are building their own pension corpus via mutual funds or systematic investment plans (SIP’s) or going the insurance route, and in both cases the new pension plan works out to be well cheaper.”

The advantage

The advantage of the fund is the structuring and its costs. Investors can now plan with a long-term horizon about their retirement and this will be at an extremely low cost. “In the absence of any social security in India this offers a revolutionary facility,” says Ranjeet Mudolkar, principal advisor financial planning standards board. The Pension Fund Regulatory and Development Authority (PFRDA) has appointed six pension fund managers (PFM), a central recordkeeping agency (CRA) and points of presence (PoP or distributors). The CRA will act as the interface between PoPs, PFMs and banks. Now, the fund management cost is around 0.0009% and is the most attractive option here. Even the annual maintenance cost, which is at the moment at Rs 350, is expected to go down to Rs 280 as more subscribers join in. Same is the case with transaction costs. “And this will make a huge difference for those planning over 20 to 30 year time frame,” says Jiten Shah a financial planner. The impact of the compounding factor can make a difference of lakhs over this time frame and this itself should attract investors. Mutual funds charge loads...

Post Comments

Comments: (Limit 3,000 characters)

Name		Message
Email ID
Subject

TERMS OF USE:
The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s).

I agree to the terms of use.