Soon You Can Plan Your Retirement with an ‘Assured Returns’ Pension Plan
Recently news reports stated that the Pension Fund Regulatory and Development Authority (PFRDA) is working on a new minimum assured-returns-based pension scheme. Currently the PFRDA is in discussion with the pension fund houses and actuaries to work out the modus operandi of the scheme.
According to reports, the PFRDA chairman Supratim Bandyopadhyay said, "Under the PFRDA Act, we have the mandate to launch a minimum assured return scheme. Under pension fund (PF) schemes, the funds that are managed are mark-to-market. So obviously there is some volatility and the valuation are according to the market movement.
So, under that, there may be some people who would like to have some minimum assurance (on return). So, for that, we are working with our pension fund managers and some actuarial firms to find out what could be the ideal (minimum) level of guarantee that can be given."
He further added that this pension product will be offered by their department. In the past, National Pension Scheme (NPS) and Atal Pension Yojana (APY) were created in consultation with the Finance Ministry.
The NPS is a voluntary investment product to save for retirement by the government sector employees, autonomous bodies, and corporate organisations; whereas APY targets the unorganised sector.
Usually for NPS, an individual contributes in a defined systematic savings during their working life based on optimum decisions regarding their future retirement. The contributions are pooled into a pension fund, which are then invested by the PFRDA regulated professional fund managers as per the approved investment guidelines.
The pension fund managers invest the pooled money into diversified portfolios comprising of government bonds, bills, corporate debentures and shares. Over the years these contributions grow and accumulate, as per the returns earned on the investment made.
Image source: Business photo created by freepik
As mentioned earlier, APY is for the unorganised sector, i.e. primarily for those who are not part of any social security schemes and do pay income tax pay. Any retired individual who subscribes to this scheme is eligible for a monthly pension of Rs 1,000 to up to Rs 5,000. The contribution paid depends on the age of individual while joining the scheme, the retired age considered is 60 years.
Mr Bandyopadhyay mentioned that, "So this will be the first product to be launched by the PFRDA. Here the actuarial aspect plays a very-very crucial role because in our existing products we are not guaranteeing anything. Whatever the market returns are, net of costs, we are passing it on to the customers wherein basically the investment risk is with the customer."
What should investors do?
The retirement corpus is a crucial amount one invests to enjoy the golden years of life. Although this news is a welcome step for retirement planning, the details of the scheme remain unclear because it's in preliminary phase.
Hence, instead of waiting for something which is still not out, you could invest prudently in the multiple avenues that already exist to create a diversified portfolio and build your retirement corpus. Senior Citizen Saving Scheme (SCSS), Post Office Time Deposits (POTD), Office Monthly Income Scheme (POMIS), National Savings Certificates (NSC), Kisan Vikas Patra (KVP), and mutual funds are some of the avenues that are helpful.
Most of the avenues mentioned above are government schemes, and including mutual fund schemes in your retirement portfolio mitigates the risk to suit your tolerance level and grows wealth. Having a diversified retirement kitty will reduce the risk and you will receive a regular income as well, which is a little higher than regular savings and bank FDs that will help you counter inflation.
The idea is to diversify the investments so that you don't face a cash crunch to meet your day-to-day expenses after you retire. The years from the start of retirement till demise are unpredictable, however financially preparing for this phase of your life is imperative for your survival. Your investments/savings will act as a steady source of income during our retirement phase.
In my view, the most suitable approach would be to start planning for your retirement right now! When you do, the time-value of money and the power of compounding will help you accrue the desired retirement corpus.
Editor's Note: If you want to retire rich, don't miss out on PersonalFN's Retire Rich service. It is an exclusive service with the sole intent of securing your retirement.
You will gain the benefit of investing in the Top 5 funds along with a DIY (Do It Yourself) retirement solution where you can start planning for your retirement and potentially build a substantial corpus that could sustain you in the golden years of your life.
Warm Regards,
Aditi Murkute
Senior Writer
Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds