Will Pension Bill bring smile to you? / Dec 13, 2005 / The Economic Times
From Indiapensions
Will Pension Bill bring smile to you?
NEW DELHI: Is the Pension Bill good news for employees? Even as the government and Left parties slug it out, here is a peep into what the payouts could be for individuals at the time of their retirement who subscribe to the new pension system, as it is being called.
If an individual invests Rs 1,000 each month during his working life of 35 years, he stands to get an annual pension of Rs 77,285, assuming an inflation rate of 4%. If the rate dips to 1.5%, the annual payout could be lower at Rs 47,212.
These estimates have been prepared by the Parliamentary Research Service of the Delhi-based think tank, Centre for Policy Research.
It says the figures are based on the proposed pension architecture made by the Pension Fund Regulatory and Development Authority Bill (PFRDA). It also adds any unfavourable event “affecting (stock) market prices could lower both pension wealth and the annuity rate” at the time of the contributors’ retirement.
This will be true of those individuals who are about to retire. In that case, the prospective pensioners may have to defer his pension plan “beyond the retirement date in order to ride over the shock”.
Other authorities claim that such downside risks will not significantly affect the pension corpus of an individual, as these are long-term plans.
The PFRDA Bill is pending in Parliament, though the standing committee on finance has given a green signal for its passage.
The Bill says an individual will continue to invest 10% of his monthly salary in one of the four approved schemes till his retirement.
At that point, he will get back as lump sum 60% of his total earnings in the pension plan, while the rest will be re-invested in an annuity plan (schemes that offer regular income based on the capital invested).
The intention is that the person will not be able to blow away his entire old age savings at one go. So the returns from the annuity scheme will continue through his life-time.
The CPR estimates are based on the assumption that the entire pension wealth of the person at retirement is re-invested in such an annuity plan.
