The Pension Fund Regulatory and Development Authority (PFRDA) has proposed important changes in the National Pension System (NPS) and has sought advice on it. If this change occurs, it will be the biggest change under NPS so far. This new change- the guarantee of pension and retirement income removes concerns, which are not in the existing NPS.
In direct words, pension can be guaranteed under NPS. Also, the tension of retirement income can be removed. The new proposal also gives exemption that you can withdraw as much money as you want.
PFRDA has sought response from experts, pension funds and other stakeholders for consultation on proposals. The regulator says that its purpose is to increase interest in pension in India by incorporating both stages and disinvestment.
The current NPS is operated under a transparent contribution scheme, which gives priority to Market Valuations. But there is not that much flaxability. As an investor, market fluctuations can cause damage due to challenges like irregular contribution and low returns. To remove this shortcomings, the regulator has proposed 3 types of pension models. 3 types of models have been made by keeping different types of people, which they can choose according to their requirement.
First- Pension through Step-up SWP and Enuity
The first model connects a systematic outroll plan (SWP) with enti, but does not guarantee pension amounts or benefits to give flexibility. Investors can guess pension in this according to a calculation. Under this pension plan, it is necessary to contribute at least 20 years, which can start from the age of 18 and there is no limit of maximum.
Under this, 50% of the contribution is invested in equity by the age of 45 and then gradually reduced. On retirement, the investor is initially given 4.5% monthly of Enuity Fund through SWP, with a growth of 0.25% every year for 10 years.
At the age of 70, the rest of the funds can be used for 20 years and then to buy life annuity. On the death of the contributor before the age of 90 years, the spouse or children will continue to get benefit till their fictional 90th birthday.
Second- Pension related to inflation
Through the second model, a fixed pension benefit related to inflation is given. This determines the pension received in the first year after retirement. After this, pension is fixed every year according to inflation. Pension is fixed on the basis of Consumer Price Index (CPI-IW). Under this scheme, 20 years of contribution is mandatory.
Fund in two parts after retirement
- A fixed pension is fixed through investment in government equities and high -rating bonds.
- For more returns, up to 25% is invested in equity, so that pension continues according to inflation.
Third- Pension Credit
The third and newest model is ‘Pension Credit’. It will have to buy credit for monthly pension, which comes with maturity for 1, 3, or 5 years. Customers can decide their retirement year, pension target and investment scheme option.
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