NEW PENSION SCHEME

NEW PENSION SCHEME

Many persons have desired to know about the New Pension Scheme launched by the Government. I may state that Central Government has launched this scheme for its employees and notified the scheme through an Ordinance. Some State Governments have also launched this scheme. It is believed that Banks are also exploring this scheme for implementation in respect of new employees. The bill is expected to be discussed and passed in the parliament whereafter it will become Official.

To the best of my knowledge and belief, it will work as under :

a) The individual members will be allotted a unique Pension Account number. The contributions made per month will be go to this account and the fund will be managed by a Fund Manager (like SBI, LIC etc.)

b) The individual account holder will be allotted units depending on the contribution and the NAV. He has an option to choose from viz. Growth, Balance and Income. In Growth option, the investment in equities will be on a higher side and lesser in the other two options. The fund manager will go on declaring bonus etc. which will be added up in the kitty by way of units.

c) At the time of retirement, the account holder can withdraw upto, say, 60% of the corpus (which will be tax free) and the remaining will be used by the fund manager to purchase annuities from any Insurance Company. Regarding annuities also, there will be option to the account holder from the various schemes available. Some tax angle is being worked out. The entire scheme of pension works on EET principle wherein the investment is EXEMPT, additions/profits will be EXEMPT and pension (by annuities) will be taxed, subject to the overall tax exemption limit which is now Rs.1,50,000.00 for male tax payers and so on. (Pension in any form is taxed anyway).

d) Benefits : On a longer term, the account holder will stand to benefit. More so, in case of private professionals who are not covered by any pension scheme, it will be helpful. This is because on a longer time horizon, minimum 10 years, the markets tend to average out and there is bound to be gains.


NITTY GRITTIES

a) It is not clear whether partial withdrawals will be allowed and if allowed, what will be restriction etc.

b) The annuity market is not yet fully developed. It is not certain what will be the amount given to the account holders (annuitants) by the companies.

c) On a longer term basis, if a person invests regularly in a well performing diversified equity scheme of any Mutual Fund, he can accumulate units. For tax exemption benefits he may consider ELSS schemes and if he has exhausted the 80© limit, he can consider any other diversified scheme.

d) He may build up a retirement nest egg of about 20000 units in 2-3 units individually and the dividend accruing in all the schemes put together will adequately make up for pension.

e) The main advantage of investing in mutual funds is the flexibility of withdrawal etc.

The choice is with the investors.


(AJAY SINGH RATHORE)KASHIWALA