India now has a pension scheme which is open to all its citizens, has an element of equity, and is expected to work wonders for all of us. Let us see some of the features…..

Any Indian citizen between 18 and 55 years can join the National Pension scheme launched by the Government of India (Pfrda).  As usual it got done because the government of India did not want to continue the ponzi scheme of ‘government indexed pension – as a defined benefit scheme. Now the scheme is designed as a defined contribution scheme and it will become the basis of the pension amount. The operational details are out but one will have to see whether operationally we will all be able to buy it from the nearest bank branch.
There will be no intermediaries involved – the fee structure is excellent but it will hurt the contributors at the lower end of the chain – those contributing less than Rs. 10,000 a month will be hit by the absolute charges. Also most financial products are pushed by the intermediary – and rarely bought. This is true even in countries where education is high. So the ability of this scheme to be successful is quite low.

The PFRDA has chosen 6 fund managers to manage the funds – at quite attractive fees. However the fund managers may not make any money till each one of them collects at least Rs. 10,000 crores! This is quite bad because the fund managers could try other ways of making money from the scheme.

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