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Updated: December 27, 2013 22:28 IST

A big push to pension plan under study

Puja Mehra
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SEBI to take up proposal to allow MF cos to offer such plans

The New Year could see the introduction of a new pensions system in India that will offer retirement savers the option of tapping the high-risk-high-return equity markets. Stock market regulator Securities and Exchange Board of India (SEBI) will in its next board meeting in January take up a proposal to allow mutual fund companies to offer pension plans.

Highly placed official sources told The Hindu that if the SEBI board approved the proposal, it could then request the government to extend to these mutual funds-run pension plans the same tax breaks that were now available to retirement savings in the government-run National Pension Scheme (NPS). “The proposal is to extend to mutual funds-run pension plans the tax benefits now available under Section 80 CCD of the Income Tax Act to the NPS,” the sources said. This would need Parliament approval, said the sources.

Section 80 CCD allows employers to deduct from their taxable income the contributions made on behalf of their employees to the NPS. The contributions to NPS schemes by employees, too, are treated tax-free. The tax benefit is over and above the Rs.1 lakh tax-free savings Section 80C of the Income Tax Act allows to individuals.

Contributions to the proposed pension scheme will be discretionary, to begin with. The NPS is the mandatory pension scheme for government employees hired after May 1, 2004, though it is open to private individuals too. The NPS does not give government employees the option of investing more than 8 per cent of their retirement savings into equity markets. Private sector employers with more than 10 employees statutorily contribute on their behalf to the Employees’ Provident Fund Organisation (EPFO).

The difference between existing mutual fund schemes and the proposed pension plans will be that withdrawals will not be allowed before retirement unless in the case of specific exceptional circumstances.

According to the proposal, the pension plans will offer retirement savers flexi-choices on the mix of fixed income and equity investment options. The NPS offers savers only three options and the EPFO offers none at all. The wider investor reach of mutual fund companies, it is expected, will give retirement savings a big push.

“Retirement savers in India lost out on the stock-market rally between 2004 and 2009 as the NPS and the EPFO have denied them adequate opportunities for equity investments,” said the sources. “As the NPS does not have its own proper selling and distribution arm savers are unable to easily access its schemes.”

In August, Finance Minister P. Chidambaram had proposed that the EPFO and the NPS be merged to make them viable, a proposal that has not progressed. “India has one of the largest young populations in the world, but no viable pensions saving mechanism,” said the sources. “This ticking bomb of old-age poverty has been a worry for the government.”

At present, India does not have a universal social security system to protect its older population from economic deprivation.

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NPS model of pension is not noteworthy to emulate. It is run at the cost of subscribers for the benefit of broker grade mediocre parties like PFMs, sellers and so called financial managers. All ULFPs and NAV based financial product are eyewash and based on jugglery based calculation for misguiding the subscribers. Equity market game is for direct players only and not for via media players at all. In indian scenario of black economy; all ULFPs and NAV based financial products are required to be banned totally by our government.All pension products are long span products for 30 to 40 years and hence they must be assured return products with senior citizen requirements and benefits inclusive in the scheme.

from:  D A BHATT
Posted on: Dec 29, 2013 at 06:22 IST

The Government of India pretends a lot. The finance Minister does not care about the pensioners belonging to RBI, LIC and SBI pensioners who have been fighting for their legitimate pension of 50% of their last drawn Pay. The SBI pensioners who are forbidden from getting their legitimate pension from 1993 onwards, have already become more than 70 years old and many of the pensioners have already left this world for heavenly abode leaving their family in lurch. May God give the living pensioners long age to withstand the onslaught by the Government. Then the Government can think of new Pension System.

from:  R.Swaminathan
Posted on: Dec 28, 2013 at 22:52 IST

Senior citizens must be weary of MF pension schemes. Just remember what happened to millions of people who lost everything in US by investing in MF run by big business.

from:  vijayaraghavan
Posted on: Dec 28, 2013 at 21:00 IST

More players entering the pension market will further enhance
awareness and grow the category that is so under-developed right now.

However given that NPS itself has not seen the kind of take off that
was expected, the bigger challenge for the Govt if it is indeed
serious about building at least a basic level social security system
for all its retirees, is to review the flexibility and the tax breaks
offered through the current NPS format.

The clause on taxation of pension income has been a dampener for
salaried Indians who are still preferring insurance schemes for
savings because of Section 10(10d) which allows tax-free maturity

Another issue is the liquidity option of the NPS. Rather than
allowing just a third of the retirement fund to be commuted,
increasing this limit will make the scheme more attractive.

Yet, one thing is clear. The pension space is poised for gargantuan
growth - and it is just what the doctor ordered.

from:  Manoj Nambiar
Posted on: Dec 28, 2013 at 07:31 IST

Can we expect that the FAMILY PENSION of EPF members will get a
revisions? It is not revised for last 15 years I think.

from:  Kunnakkattu
Posted on: Dec 28, 2013 at 06:36 IST
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