NPS will give more people a secure future

MANGALORE: With life expectancy increasing, people in the country live for an average of 17 yeas after retirement. With the joint family system gradually disappearing, 67 per cent of households are nuclear families.

More number of elderly people are left to fend for themselves. According to a Government estimate, there are about 10 crore people who are above 60 now. This figure is set to reach 25 crore by 2040 and 32 crore by 2050.

“There will be havoc if there is no social security for them,” said Kavim V. Bhatnagar, a top civil servant from Madhya Pradesh on deputation at the Invest India Economic Foundation, who has been working in this area for the past few years. “A majority of India's informal sector working poor, including low and medium-income workers in urban and rural districts, are highly vulnerable to old-age poverty as they are excluded from formal pension provisions,” he said here recently.

To address this issue, the Union Government has introduced the New Pension System (NPS) that is transparent and free from hidden and exorbitant costs.

NPS mechanism

Not only it is regulated by the Government, but all the government employees are also being brought under its purview. Unlike government employees, those in the private and unorganised sectors will have to open an account on their own and contribute to it voluntarily.

According to documents made available to The Hindu, unlike the Provident Fund Commission, which both regulates and operates the pension scheme, the NPS introduces a paradigm shift — separate agencies to handle different aspects of the scheme.

The Government has constituted the Pension Fund Regulatory and Development Authority (PFRDA) to regulate the scheme. The PFRDA has appointed various intermediaries such as banks, post offices, private agencies that open pension accounts, the Central Record-keeping Agency that maintains NPS records of each account-holder and makes it available on line, besides receiving online grievances, and a set of pension fund mangers.

The regulatory body has appointed 22 agencies, including State Bank of India, South Indian Bank, UTI Asset Management Company and their branches across the country to open NPS accounts.

The PFRDA has identified SBI Pension Fund Pvt Ltd., ICICI Prudential Pension Funds Management Company Ltd., IDFC Pension Fund Management Company Ltd., Kotak Mahindra Pension Fund Ltd., Reliance Capital Pension Fund Ltd., and UTI Retirement Solutions Ltd. as fund managers. People can choose their own fund manager and can even change to some other fund manager subsequently.

Fund management

Investors can choose to invest a maximum of 50 per cent of their funds in share market, and the rest in government bonds and corporate securities and can vary the ratio, depending on the variations in the market risk factors.

Investors can also leave it to PFRDA to decide on the ratio. However, the PFRDA decreases the ratio of investment in equities as the investor's age advances: from 50 per cent till the age of 35 down to 20 per cent at the age of 55. Investment in government bonds increases proportionately.

Those opening an account in the current financial year will get a co-contribution of Rs. 1,000 a year for three financial years from the Union Government. This, with compounded interest, can put over Rs. 1 lakh in the investor's hands by the time of his or her retirement, assuming the present age of the investor to be around 30, Mr. Bhatnagar said.

According to the NPS brochure, those beginning early benefit a lot. According to PFDA brochure, a person contributing Rs. 1,000 a month from the age of 18 will have Rs. 1.49 crore in his hands, if the fund managers earn 12 per cent return annually. This comes down to Rs. 35 lakh if the investment begins at 30 and Rs. 8.67 lakh if it begins at 40 and a mere Rs. 2.3 lakh if it begins at 50.

Focus on Mangalore

At present, the Government has chosen Dakshina Kannada in Karnataka and Hamirpur district in Himachal Pradesh for the pilot projects to popularise the NPS. As part of pilot projects, mass presentations are planned from April 12 to enrol people for NPS. Special camps have been planned to spread awareness about the benefits of the NPS among people, especially homemakers, according to Mr. Bhatnagar.

Govind D. Belgaumkar