PPF , PF, EPFO , Mutual Fund Pension Schemes, Retirement Planning products from Insurance Companies, bank fixed deposits and post office schemes. A very small part of the population created its own customized Individual Products. This could be a couple of extra properties creating rental income, shares creating dividend income etc. Many people of the earlier generation would be dependant on their children – willingly, unwillingly, happily or unhappily.

Welcome the NPS -  the new Avatar for Retirement Planning. Created by the government of India it has Some major advantages of the NPS. Let us look at them.

Costs Involved:
i) The total costs involved in terms of % are minimal – cheapest in the world.
ii) The charges are under various heads such as CRA Charges, PoP Charges, Custodial Charges and Fund   Management Charges.
iii)  Flexibility to choose the fund manager, Flexibility to choose the asset allocation.
iv) Portability across the geographical location, Transparency.

The investment pattern is adjusted to growth and security. It protects against market volatility by allowing a subscriber to invest in a diversified and balanced portfolio. To retain his pension corpus for 10 years after age 60.

Between the ages of 60 to 70 , the subscriber can withdraw  his savings in phased manner anytime the market is favorable.There is also a minimum amount that he should withdraw on a year to year basis from the clients age of 60 to 70 years.

Income stream after Retirement

Mandatory Annutisation of 40% of corpus provision for steady retirement income. The risks of a subscriber outliving his money are reduced as monthly annuity can be purchased for specific number of years.

Illiquid Scheme

Limited scope for withdrawal of pension assets  as a means of transferring resource from period of economic activity to a period of retirement

The NPS seeks to achieve inter temporal  consumption re – distribution i.e. it seeks to change  the consumption behavior of a person over his lifecycle

The Forgotten Population
    The aged were not considered relevant
    People spent a small time in retirement – the gap between the retirement age to the living time was not much.
    They constitute the invisible population, financially dependant and passive in the economic process – and not vocal
    We need to remember that we will all go through that phase, so let us be prepared
The Pension Coverage

     Pension is synonymous with the formal sector employment
     Only the Governmental sector has a big population which gets an ‘indexed’ pension
     The non formal sector has  no pension coverage

The Pension Debate

    The pension debate is limited to pension in formal sector
     Non formal sector has willingness and capacity to invest
     Surplus income saving combats old age vulnerability
    When security is  the ability to work, old age and ill health result in  abject poverty

The Longevity versus Savings Debate

To those outside formal sector, old age security is available through limited voluntary savings
    The extent of the savings available and longevity decides  the quality of life in old age.

continued….

NPS is now being made available to the common public from May 2009. Any one can avail himself or herself of this scheme. I am planning to do a small series of ‘What is the NPS’ – right from what is the architecture, the cost, the administration, the jargon (CRA. POP, vesting, annuitizing etc.) over the next couple of weeks.

Even though the plan is just been thrown open to the common man it already has about 500,000 participants – being the government employees who are no longer entitled to a Defined benefit but have to do a defined contribution (oops jargon again – will clarify all this in the jargon buster ….over the next 2-3 weeks