Pen­sion with­out a Govern­ment Job?

Pen­sion with­out a Govern­ment Job?

Consumer Voice - - Con­tents -

NPS Makes It Pos­si­ble

The good news is that as per a United Na­tions re­port life ex­pectancy in In­dia has im­proved from 32 at the time of In­de­pen­dence to 65 at present, and is ex­pected to touch 75 by 2050. The other side to this de­vel­op­ment is that one of the youngest na­tions of the world will also have a large num­ber of el­ders in the years to come. Un­der­stand­ably, most of you born on this side of the world – where a so­cial se­cu­rity sys­tem as­sur­ing ‘cra­dle to grave’ se­cu­rity is don­key’s years away and cost of liv­ing is con­stantly in­creas­ing– are plan­ning some­thing or the other for fi­nan­cial se­cu­rity in old age. It is in this con­text that Con­sumer Voice brings to you an in-depth anal­y­sis of the Na­tional Pen­sion Sys­tem (NPS) that was started with the ob­jec­tive of pro­vid­ing re­tire­ment in­come to all cit­i­zens.

Launched on 1 Jan­uary 2004, the Na­tional Pen­sion Sys­tem was ini­tially meant for gov­ern­ment em­ploy­ees – ex­cept the armed forces – join­ing gov­ern­ment ser­vice on or af­ter 1 Jan­uary 2004. Sub­se­quently, on 1 May 2009, the NPS was opened to all cit­i­zens – they could now join the scheme on a vol­un­tary ba­sis.

The NPS is a ‘ de­fined con­tri­bu­tion’ pen­sion scheme – this means that a cus­tomer will in­vest a pre­de­fined sum ev­ery month in a fund cho­sen by them and at the time of re­tire­ment will have a

lump-sum amount de­pend­ing on the per­for­mance of that fund. This is dif­fer­ent from the ear­lier pen­sion sys­tem where the amount one re­ceived ev­ery month af­ter re­tire­ment was de­ter­mined by the gov­ern­ment and in­creased pe­ri­od­i­cally (also called de­fined ben­e­fit sys­tem). Un­der the NPS, af­ter re­tire­ment one will have to de­pend on their cor­pus for their monthly pen­sion.

It is ba­si­cally a mar­ket-linked re­tire­ment in­vest­ment prod­uct with a struc­tured setup. NPS ac­counts can be opened through in­ter­me­di­aries called points of pres­ence (PoP), com­monly known as ser­vice-pro­vid­ing branches/of­fices (of banks and NBFCs). They are also au­tho­rized to re­ceive con­tri­bu­tions. Such in­di­vid­ual con­tri­bu­tions are pooled into a ‘pen­sion fund’ that is in­vested in the mar­ket in ap­proved se­cu­ri­ties.

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