Reasons and Reasons for Pension Optimization in India

Financial Planners


Considering the fact that some expenses, such as commuting, housing, and meals, will decrease after retirement, while other expenses, such as medical, travel, and insurance, will increase, offsetting your savings. 50% pension may seem reasonable. To some extent. Some financial planners talk about the 80% rule that says you need 80% of his last salary to live reasonably comfortably in retirement.There is a point in this argument

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There is no universal understanding of pension adequacy and no universal means of measuring it. However, most pension schemes aim to alleviate poverty at a subsistence level or provide alternative income as close to pre-retirement levels as possible. Suitability testing therefore amounts to checking whether these goals are met.

It would be possible to examine whether the pension system currently in force in India, especially the public system, meets these objectives.

Some of the major government-funded non-contributory pension schemes are under the National Social Assistance Program (NSAP) and provide social assistance to poor households in the form of pensions to BPL individuals who are elderly, widowed and disabled. We aim to provide Their flagship scheme is the Indira Gandhi Old Age Pension Scheme for the Elderly, which currently provides 300 rupees per month to 23 million beneficiaries. This pension is supplemented by the state government, which contributes various top-up amounts. However, even with these supplementary pensions, recipients receive less than half of the Rs 5,340 per month that unskilled workers receive as minimum wage. The extent to which NSAP pensions can achieve their goal of improving the lives of the poor is immeasurable. By any standard, NSAP pensions are not considered adequate.

For organized workers, such as government employees and employees of large institutions, the purpose of pensions is to provide a standard of living above the minimum that retirees can live reasonably comfortably. In other words, the pension is an alternative income after retirement and should be sufficient to maintain a standard of living similar to that before retirement.

Civil servants were previously covered by the Old Pension Plan (OPS), which guaranteed a pension equal to approximately 50% of their last paid salary. Since 2004, the National Pension Plan {NPS} has been in place and pays a pension linked to market returns, but not a guaranteed amount by definition. The pension is paid from a minimum of 40% of the retirement allowance from the pension purchased from the insurance company at the time of retirement. It is too early to talk about the amount of pensions retired civil servants will receive, as very few employees have completed their tenure at the NPS, a program that was only launched in 2004. However, research done at the start of the NPS scheme shows that pensions are no different than OPS.

For organized workers covered by EPFO, pensions are linked to salary, just like civil servants. Pension benefits are now on par with those of civil servants under the OPS since members were allowed to receive higher pensions in proportion to their pension entitlements.

Considering the fact that some expenses, such as commuting, housing, and meals, will decrease after retirement, while other expenses, such as medical, travel, and insurance, will increase, offsetting your savings. 50% pension may seem reasonable. To some extent.

Some financial planners talk about the 80% rule that says you need 80% of your last paycheck to be reasonably comfortable in retirement. This argument has some merit, especially given the rising cost of living and the fact that neither the EPFO ​​nor his NPS pension are indexed to inflation. However, the national pension has a provision to reduce the lump-sum amount and increase the pension amount, so that the shortfall can be compensated. Following a recent Supreme Court ruling, EPFO ​​is now able to claim pensions at current salary levels instead of the previous cap level of Rs 15,000 p.m. Pensions are paid according to a set formula, which can be quite expensive under the current system.

These reimbursement features of NPS and EPFO ​​tend to reduce post-retirement costs.

For the organized workforce, therefore, pensions allow retirees to maintain a standard of living not too different from that of the past.

Pensioners enrolled in voluntary pension schemes, such as NPS, insurance companies, and mutual fund schemes, will have more freedom to choose the appropriate pension scheme. Therefore, the suitability of an annuity depends on individual choices and ability to save. Freedom of choice, however, requires a greater understanding of the risks and benefits associated with each scheme, and those with a better understanding of these issues tend to benefit more.

In conclusion, while pension benefits for the organized workforce more or less meet the objective of maintaining a satisfactory standard of living, the same cannot be said for pension benefits that apply to the poor.

(The author is the former chairman of the Pension Fund Regulatory and Development Authority (PFRDA))



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