In India, life expectancy has increased to an average of 70 for men and 67 for women. It has increased by more than 10 years in the last two decades. This was possible due to progress in science, better medical facilities and health consciousness. Many senior citizens in the country are not financially independent much to their desire and depend on their children for their needs. Children’s education and marriage has always remained a priority for Indians, and they have never considered investment for their golden age.
If one assumes an average career start age of 25 years and an average retirement by say 55, then it means that one must work for 30 years and must create a corpus for 30 years without any regular source of income. This is the new 30-30 challenge. Planning for old age income security, pension and medical treatment specially post retirement is a priority in financial planning by investment advisors.
All government employees who joined before 2004 enjoy the defined benefit pension system. This meant they were entitled to regular inflation adjusted pension, travel concessions, free medical treatment, continued financial support for the employee’s, spouse, etc. Clearly, this was a burden to the government with the increased life-expectancy and cost of inflation added to the issue.
National Pension Scheme was launched in the year 2004 by the Indian government as a defined contribution pension system for government employees. This was later ex- tended to corporate, private, unorganised sectors and individuals.
The outreach has remained very poor as the incentive for marketing is miniscule for the intermediaries. The fund management cost is the lowest as compared to regular mutual funds. Investors have a choice to invest under Sec 80 within a limit of Rs 150,000 along with PF, ELSS, Post Office Schemes, Children’s Education, Interest on Housing Loan, etc. or claim an additional tax deduction of Rs 50,000 under Sec 80CCD(1b).
Tier I Equity Plans have given a return be- tween 13 to 16 per cent per annum for one year; 7.5 to 9.5 per cent per annum for two years and 14 to 15.5 per cent per annum for three years period. A monthly contribution of Rs 5,000, say in ICICI Pru Pension Fund or Kotak Pension Fund, for almost five-year is worth more than Rs 4 lakh.
The government announced Pension Fund Regulatory Development Authority (PFRDA) is now looking at auto enrollment system under NPS, with an element of soft compulsion, in which all the employees working in the government- identified sectors/industries in unorganized sector will be automatically covered unless they choose to opt-out.
This article was also published in the Indian news print media.
