Skip to main content

Will you get your pension?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

His employers have put in nearly 85,000 in a scheme on his behalf but Prashant Jangale does not know how, when or what he will get in return. The Mumbai-based marketing professional is not aware that as a member of the Employees' Provident Fund (EPF), he is eligible for a monthly pension for life after he turns 58. After him, his wife will receive pension for life.


Jangale is not alone. Almost 59% of the respondents to an online survey conducted last month by economictimes. com were unaware that private-sector employees covered by the EPF are also eligible for lifelong pension. More than 30% of these respondents have contributed 65,000-1 lakh to the Employees' Pension Scheme (EPS) till now.


The amount flowing into the EPS every month is so small that most don't even notice the deduction. It is 8.33% of the employer's contribution to the EPF on behalf of the employee, with a cap of 6,500 a year. Even so, the monthly contribution of 541 has the potential to amass a huge sum over the long term. Even at a modest interest rate of 8%, this tiny amount can burgeon into 12.41 lakh in 35 years.


Sadly, this is not what happens to your contribution to the scheme. The amount just flows into a pension pool without earning any interest for you. If you have completed at least 10 years of service, you start getting pension from this pool after you turn 58. The pension amount is based on the number of years you had contributed to the scheme and your basic pay at the time of retirement. Here again there is a cap of 6,500. If you were in service for over 20 years, you get 2 bonus years as well.


This is not as cool as it may sound. Our calculations show that someone who joins at the age of 23 will get a pittance of 3,250 as monthly pension when he retires at 58. Instead of the EPS, if the money is put into an option that earns 8% it would grow to 12.41 lakh in 35 years. If annuitised at the current rates offered by the Life Insurance Corporation, this amount would generate a lifelong monthly pension of 8 242  


In other words, the EPS is giving out lesser pension than what your contribution could have earned. You must take into account that the EPS also gives life insurance cover and other benefits like pension to widows and children. These benefits come from the same pool into which everybody is contributing.


Ticking time bomb


The low returns is a minor problem compared to the crisis looming in the horizon. The defined benefit model is not sustainable. Things are not looking too bad right now because there are more contributors than beneficiaries. In 2011-12, for instance, the EPS received contributions worth 14,768 crore and paid out benefits worth 7,859 crore. The scheme's corpus increased 14% to 1,83,429 crore during the year.


But this situation would change in the coming years as India's demographic dividend transforms into a geriatric nightmare. In 2012, only 8% of the Indian population was above 60 years. Studies have estimated that this figure would rise to 12.4% by 2026 and to 19.1% by 2050. With every passing year, the pool of pensioners will become larger even as the number of contributors will rise at a slower pace.


That's not all. Life expectancy too is on the rise. The average Indian lives up to 68.4 years. In urban centres, life expectancy is higher by about 5 years. By 2030, the average urban Indian would be living till the age of 80, putting more pressure on the pension payments. This also means that by the time GenX gets a farewell party at office, the EPS might have gone bust.


Panel's recommendations rejected


Three years ago, an expert panel had suggested that the EPS be replaced with a provident fund-cum-annuity combo under which contributions would flow into individual accounts. Each member was to have two accounts—one for the Provident Fund and the other for the pension. The panel suggested that the balance in the pension account be used to buy an annuity for the individual when he retires. However, most of the modifications suggested by the expert committee were rejected by the CBT.

However, there are some positive points about the EPS as well. For instance, it offers the option of early pension to people who may have turned entrepreneurs or retired early. They can opt for pension after 50 but will have to forego 4% for every year before they turn 58. There is no option for early pension under the NPS.


Also, the EPS allows withdrawals if you have not completed 10 years of service. However, once a person has completed 10 years he can't withdraw and will have to wait till he turns 58 for the pension to start flowing.


Digging a deeper hole


The EPFO is now considering raising the contribution limit from 6,500 a year to 10,000 a year and giving a minimum pension of 1,000 a month. Both measures have the potential to dig a deeper hole for the EPS. Raising the limit would cause the pension outgo to shoot up. Retirees who contributed the lower amount of 6,500 a year would be eligible for pension based on the higher limit of 10,000. The last time the limit was raised from 5,000 to 6,500 in 2002, the scheme notched up a deficit of 10,000 crore. This time, a formula must be worked out to adjust the pension accordingly. The minimum pension limit will also put pressure on the scheme as lower income workers are cross subsidised by other members.


Already there are signs that all is not well. In the past 15 years, the scheme has slipped into the red. Experts estimate that it now has a deficit of almost 54,000 crore. Of course, this is a noptional deficit based on the pension payable to the existing members. However, the EPFO has disputed these estimates, saying that they are not statistically robust. "The valuations computed the pension liability by extrapolating the age and income data of 5% subscribers whose details were available with us. We have now provided data on 70-75% of the subscribers to the actuaries. Their valuation report, which is expected soon, will give a more realistic assessment of where the EPS stands," says Central Provident Fund Commissioner Krishan Kumar Jalan.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...
Read more

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...
Read more

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now