Monday, October 13, 2008

How much pension you would get?

Government of India decided to adopt New Pension Plan for NVS employees. Presently under CPF system, 10 per cent of basic pay is subscribed by the employee and the same amount is added by NVS. Under the new system, one has to pay 10 percent of basic and dearness allowance and the same amount will be added by NVS. The other big difference is transparency and empowerment that comes to you to manage your own money. Presently the return is pegged with the rate of interest decided for EPFO. Which is paltry considering the rate of return that could be generated with proper allocation to equity. Many employees out rightly reject the idea of new pension plan. Before taking a decision, proper study is required. If you take an example of 30 year old employee, whose basic salary stands at 20000 with expected average annual increase of 3 percent, will fetch him less than a crore as his retirement fund. (Taking average rate of 8 percent) Under new system the retirement corpus would be less than 5 crore. As the Dearness Allowance is also included for the subscription the expected average annual increase in the salary amount can be presumed at 8 percent. Over the long term equity would usually fetch 15 percent (there is great deal of historical evidence to prove that point). If you want to calculate your own retirement corpus, you can do it here.
Out of the retirement corpus, 6o percent of it can be taken back by you. Remaining 40 percent you have to hand over to an insurance company for your pension. You can customize it as per your requirement. All that will be done based on the interest rate at the time of your retirement. So what worries many of us may be lack of fixed amount. Who knows we get more than what we would get under the old policy? All of us need to do lot of home work! The first step is to get acquinted with the new system. You can do it at pension portal of govt of india.

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