New pension scheme (NPS) for All from May 1: Turning new leaf

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The much awaited new pension scheme (NPS) will kick off from May 1. It promises to change the face of the pension market in India.
what the scheme has to offer?
The new pension scheme has something to offer for all investors. If an investor wishes, he can choose even his investment strategy and fund manager.
So how does it work?
A new pension scheme
- Bank branches and post offices to collect contributions
- 6 pension fund managers appointed
- Central record keeping agency appointed
- Scheme is portable across jobs and locations
Existing bank branches and post offices will be used to collect contributions. Six pension fund managers will devise schemes and manage funds. A central record keeping agency has also been appointed. All these institutions will be regulated by an independent regulator, the Pension Fund Regulatory and Development Authority (PFRDA). The biggest advantage is the scheme's portability across jobs and locations.
D Swarup, Chairman, PFRDA, said, "There is a lot of flexibility. Whenever you wish to make a contribution you are allowed to do so. If you skip a month it doesn’t matter. If you skip two months it doesn’t matter. As long as there is a minimum, which we will put as annual contribution. Lastly, the costs are low."
Charges?
The charges for the new pension scheme are likely to be 15 to 20 paise per Rs 100 which is much lower, compared to pension schemes by mutual funds or insurance companies.
Investment Strategy - Three asset classes likely
- E category: Equity (high risk, high returns)
- G category: G-Secs (low risk growth option)
- C category: Corporate bonds (medium risk conservative option)
The investment norms are yet to be clearly defined. However, it is likely that there will be three asset classes. E, G and C categories.
The disadvantage - the tax effect
- EET (exempt-exempt-taxed)
Category: Taxable on withdrawal
- Funds like PPF and EPF are tax free
The NPS falls under the exempt-exempt-taxed or EET category. This means that the corpus is taxable during withdrawals. This makes the scheme less attractive because other schemes like the PPF and EPF are tax free on maturity.
Sources say there is an effort being made by PFRDA to make the NPS completely tax free on par with other schemes. Returns are not guaranteed. But experts say that one could expect equity returns to be about 15 to 17% annually over a period of 7 to 10 years and 6 to 8% from the growth option.
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