NEW PENSION SCHEME: CHOOSE PLAN TO SUIT RISK PROFILE
Under the New Pension Scheme (NPS), investors save money which is put into the capital market. The sum which you will get after retirement will be dependent on the performance of the capital market. You can make monthly or weekly contributions to the NPS. But for every contribution, your transaction cost will increase.
Prior to NPS, there was the Defined Benefit Plan -one would get certain pension fixed for life. The post retirement proceeds were fixed and if there is a shortfall in this corpus, the government would make good.
NPS is a Defined Contribution Plan where the returns will not be fixed. You will only get what you have contributed and returns that the fund manager generates on it. All new entrants to the central government services (other than armed forces) after January 1, 2004, will compulsorily join this scheme. All citizens, including NRIs, aged 18 to 60 can voluntary join the scheme. The exit age is 60 years.
A minimum contribution of Rs 6,000 is compulsory per year. The minimum amount per contribution is Rs 500 and a minimum of four contributions in a year for each subscriber account is required.
Under the NPS, each subscriber is allotted a unique 16-digit Permanent Retirement Account Number (PRAN). This number is portable. The records of transactions are maintained by the Central Record Keeping Agency (CRKA). The subscriber has the option to invest with seven pension fund managers (PFMs). He also has the option to choose any one or more PFMs to manage his contribution. These PFMs will have three kind of funds categorised as 'E' for equity funds, 'G' for funds investing in government securities and 'C' for fixed income securities other than government securities.
There are two types of accounts:
Tier I account where you cannot withdraw
The Tier I account is the basic NPS account that is non-withdrawable till retirement or death of the subscriber. In this account, the total corpus at retirement age is split, where a minimum of 40 percent of the final corpus has to be compulsorily used to buy an annuity while the subscriber is free to withdraw the remaining 60 percent as a lump sum or in installments.
Tier II account where you can withdraw
The Tier II account is available to only to those who are existing subscribers of the Tier I account. The money contributed into this account can be freely withdrawn as and when the subscriber wishes to except for a minimum balance that needs to be maintained at the end of each financial year.
The NPS levies an investment charge of .00009 percent of the assets under management. Initial charges of account opening are around Rs 470. From the second year onward the charges are Rs 350 per annum. Also, a charge of Rs 10 is applicable for each transaction. One can make monthly or weekly contributions. But for every contribution, your transaction cost will increase.
These are managed by fund managers. Currently, seven fund houses appointed by the government are available under the NPS.
LIC Pension Fund Limited SBI Pension Funds Pvt Limited UTI Retirement Solutions Limited IDFC Pension Fund Management Company Limited ICICI Prudential Pension Funds Management Company Limited Kotak Mahindra Pension Fund Limited Reliance Capital Pension Fund Limited
There are three schemes available under the NPS. Fund C
In case you invest in this fund, all the money will be invested in fixed income instruments such as corporate bonds and government securities. One should consider investing in this fund if the risk appetite is medium as corporate bonds are not that risky. Fund E
In case one invests in this fund, a portion of not more than 50 percent of the invested money will be put in equity. You should choose this retirement plan only if your risk appetite is high, as up to 50 percent of your money will be linked to the performance of equity.
In this case, all your money will be invested in government securities. Hence, this is suited for risk-averse investors. One can choose to invest in any of these funds. You may also invest in a mix of these funds. If you do not choose between these funds, your contributions will be invested in a fund with 15 percent in equity, 45 percent in corporate bonds and 40 percent in government bonds. With increase in age, after 35 years, the government bond exposure will increase with a maximum limit of 80 percent and 10 percent each in equity and corporate bonds.
Fixed income pension plan
The government has proposed to extend the 'fixed income pension plan' to workers in the unorganised sector. The monthly contributions one makes will be invested as per NPS guidelines. The State funds for the savings scheme will be added to this. If any gap exists between the sum guaranteed and sum generated from the two steps, the central government will provide the required funds. The new plan will be started off initially in Haryana, Karnataka and Andhra Pradesh. This amendment is meant only for workers in the unorganised sector. Central and State government employees will continue to get pension through NPS.
Tax benefit Presently, NPS does not offer any tax exemptions unlike other retirement plans. It falls under the category of exempt-exempt-tax (EET) system which means that maturity benefits you receive after retirement will be taxable. However, with the Direct Tax Code coming in NPS will be tax exempted on withdrawal too.--
PERFORMANCE RELATED BONUS - INCENTIVE SYSTEM FOR GOVT EMPLOYEES MAY BE INTRODUCED NEXT YEAR
An incentive structure akin to one prevalent in private sector could soon be in place for government servants as well, building on the extensive performance review that is already underway for them, a top government official said.
"An incentive system is being worked upon as recommended by the Sixth Pay Commission. It could be implemented by next year," Prajapati Trivedi Secretary Performance management, said at the annual economic editors' conference.
The incentives would be given out from the cost savings achieved by a bureaucrat in his role and will, therefore, not place an additional financial burden on the Government, he explained. Besides, the extensive job performance parameters, these incentives would also depend on cost saving on account of reduction in the use of office stationary and savings in electricity consumption. Cabinet secretary K M Chandrashekhar has already written a letter to all secretaries to the Government of India on their performance targets.
A mid-year review of the performance of Government departments and officials is currently underway, that will give them fair idea of how each fare with respect to their agreed goals.
The Government had put in place a performance monitoring and evaluation system following an announcement in this regard by the President in her address to both the houses of Parliament on June 4, 2009. The first evaluation was carried out last year which was limited to only three months of the fiscal.
The current year's evaluation would be the first comprehensive exercise, which will be illustrated in a report card. This report card will be finalized by May 1 each year.
The new policy is designed on what is already in place in many countries. New Zealand, United Kingdom and USA carry out extensive performance reviews of their government departments.
The results framework document of each ministry or department will be put on its website to ensure stakeholder participation and transparency of the exercises. The concept is based on a paper prepared by the IIM, Ahmedabad.