NRIs with dreams of returning to their homeland have been offered another inducement. Very soon, NRIs (non-resident Indians) will also be allowed to join the government's new pension scheme, along with others in the organised and unorganised sectors.
This means, if you have a cousin or a brother-in-law or a friend working in the USA, he can soon become a member of the new pension scheme. He will then be able to start planning for a life in India post-retirement.
At present, the scheme - which was kicked off on January 1 - is applicable only to new entrants to central government services. It is expected to be opened to other non-government employees and NRIs shortly after the scheme is operationalised in July.
The Pension Fund Regulatory and Development Authority (PFRDA)is finalising the norms for selecting the pension fund managers and the central record keeping agency. The new pension scheme is based on defined contribution - or the pay-out you get post-retirement will depend on how much you have contributed to the pension schemes during your working life. Government employees who have joined on or after January 1 are contributing 10% of their basic pay towards the scheme, with the government providing a matching contribution.
The pension plans will debut with three schemes, each with varying proportions of government securities (gilts), investible grade bonds and equity. For instance, the first scheme will offer 60% investment in gilts, 30% in bonds and the balance in equity.
These proportions will vary in the other two schemes, in line with the investor's risk appetite.
The PFRDA is planning to peg minimum annual contribution at Rs 3,600 for those joining the new pension scheme on a voluntary basis from the unorganised and organised sectors. Once NRIs and state governments join the scheme, it would achieve a critical mass that could attract major pension fund managers.
An annual contribution of Rs 3,600 (assuming a daily contribution of Rs 10 for a period of 25 years) could result in an annuity of close to Rs 800 a month at the age of 60 for non-government employees.
Unlike the pension scheme for new government employees, there is no provision of a matching contribution for non-government employees. However, those joining on a voluntary basis would be free to decide the periodicity of contribution, provided each contribution is at least Rs 300 and the sum of contributions totals Rs 3,600 annually, according to the PFRDA proposal.
The new pension scheme envisages a Tier I account, from which premature withdrawals would not be allowed. The Tier II account would, however, operate like a savings account for members. For those exiting the system before retirement, for instance a non-government employee, it would be mandatory to use the fund accumulated to buy an annuity. The accumulations in the Tier-I account will be eligible for tax benefits.
Those joining the new pension scheme would be allowed to specify a nominee for the Tier I account into which the monthly or periodic contributions accumulate. Under the plans, the operation of the Tier II account would be allowed to those joining the new pension scheme on a voluntary basis, only if they invest a minimum of Rs 3,600 in the Tier I account.
In the initial phase of the scheme's implementation, members may not be permitted to exercise any option to switch between schemes or between pension fund managers. But, they would be free to specify their preference for pension fund managers or schemes at the time of their contribution. This restriction would be relaxed in a phased manner by the PFRDA in consultation with the Central Record Keeping Agency
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