NEW PENSION SCHEME gives More Returns

NEW PENSION SCHEME
gives 12 % average returns!
last year (first year of its operation) for public
&
14.82% average returns For Central Government Employees

1) The New Pension Scheme (NPS) for for all citizens of India introduced in May 2009, has generated an average return of 12% in the first year of its operations, outperforming most other long-term saving schemes such as the Employees’ Provident Fund and term deposits.The year-old scheme for All Citizens of India has a corpus of just Rs 10 crore with 6,000 subscribers as compared with the Employees Provident Fund (EPF) which has over 4.5 crore subscribers with a corpus of over Rs 2,62,000 crore as on March 2009. NPS corpus is managed by six different fund managers. The equity investments of the scheme have generated a 26% return. Performance of the six fund managers will soon be reviewed the official added. The returns on government securities and corporate bonds, however, have averaged just about 5% and 11%, respectively in the period, largely because of a lack of funds.

The new pension scheme corpus is equally divided amongst the six fund managers including SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Funds, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund.The equity investments of the scheme have generated a 26% return. Performance of the six fund managers will soon be reviewed by PFRDA. The returns on government securities and corporate bonds, however, have averaged just about 5% and 11%, respectively in the period, largely because of a lack of funds.

With just 10 crores of General Public Corpus divided among 6 fund managers had a little choice making difficult to deploy directly in government securities or corporate bonds.

It will be interesting to see how this performance attracts new subscribers. In our earlier post I have already mentioned that this this the first ever social security toll introduced by govt of india for all its citizens. NPS gives the power to invest upto 50% in equities and when compared with charges of ULIP and mutual Fund, its just a fraction of that.

Considering the govt has already announced swavlamban scheme, where it will contribute Rs 1000 per year, it expects to attract big number of subscribers this year



2) Central government employees who joined as a part of the contributory New Pension Scheme (NPS) have earned a weighted average return of 14.82 per cent during 2008-09, the first year when three fund managers managed a corpus of around Rs 2,000 crore.

This has outperformed any another form of Investment like PF etc. Its a Win Win situation for both Govt as well as Employees.

This is in contrast to the annual 8 per cent returns between January 2004 and March 2008 when the government had not transferred the money to the three fund managers – SBI Pension Fund, UTI Retirement Solutions and LIC Pension Fund.

The Centre moved all employees joining from January 1, 2004 to NPS, where they have to chip in with a contribution of 10 per cent of their basic salary with a matching contribution made by the government. While the money was being deducted, it was parked in a government account and earned a fixed rate of return.

While the corpus will increase this year, partly due to higher contribution and also due to the release of some of the arrears following the implementation of the Sixth Pay Commission’s recommendations, the equity investment is also expected to go up.

At present, around 5 per cent of the corpus is invested in equities against the permissible limit of 15 per cent.

This year onwards, the fund management fee is also going to decrease to 0.0009 per cent (or 0.09 basis points), in line with the pension scheme for non-government employees, as against up to 5 basis points last year.

In addition, state governments are expected to join the scheme. While 21 states have shown their willingness to join NPS, none of them have started releasing the funds as some of them, unlike the Centre, are reluctant to bear the costs, such as those related to the record-keeping agency.