New Pension Scheme - Retire Well

There was a man living in his late 50s, he had a daughter to get married, a son in his graduation and a wife and he is the only earning member in the family. He had to plan for so many things lined up and most of them are cost heavy. Now there can be two possibilities- the man had done initial investments (stocks, real estate, mutual fund etc) and he sells them and take returns to satisfy the needs along with his savings from the salary. The other situation is that he has planned everything systematically and opted for NPS. He knew how much he would need in future for big expenses like child education, marriage etc. Finally, the man retires- son and daughter both married and living outside India happily. The man now has no earnings in case 1 as he had sold his investments. But in case 2 even though he sold his properties at the time of need, he will get monthly income due to NPS. He still can earn his living without tension and the man along with his wife enjoy their senior citizen life.

The purpose of life is to live a healthy living, eat meal two times a day, keep your family happy, satisfy their needs and earn- how much? The nature says that we are never satisfied with what we get and on how much we wish to earn. But we have options till we have a job, business men are exceptions in this situation. Imagine you are working in a small shop or any unorganised sector and you turn 60. What next? No job, no earnings, what will happen to your family. Here is an illustration to this.

Nothing bad will happen because here is scheme which will provide regular (monthly) income to your family once you retire. This scheme is NPS-New Pension Scheme. It has been introduced by Government of India for providing pension benefits to the common man specifically to those who are self-employed like barbers, shopkeepers, etc. and to those who work in unorganized sector. Under this scheme, individual has to regularly invest some amount and he will get some fixed amount at the time of retirement as income. There are various benefits and what better than this would serve your purpose. It is like you get a reward of your job for the hard work and your contribution to the company.

It is open for every citizen of India and you can opt for this scheme easily and conveniently. It is very flexible and regulated by PFRDA (Pension Fund Regulatory and Development Authority) which is a transparent regulatory body. Hence, you are secured and keeps a monitor check on the happenings and proceeds. Thus, it is highly genuine and trust worthy. Any person from the age 18 to 60 can opt for this scheme. But when there is an undischarged solvent, unsound mind person or might be a pre-existing account holder of NPS, he/she is not eligible for NPS.

Next section is about opening of NPS account. It is simple indeed. Two types of account can be opened under NPS Scheme i.e. Tier 1 and Tier 2.Tier 1 says that the amount can be withdrawn by the NPS account holder up to the age of retirement i.e. 60 years and Tier 2 account subscribers are free to withdraw their savings as per their requirements.

Everything basic thing is discussed but major question striking your mind would be how much amount to be contributed. So, there is a minimum limit of Rs 500 per month or Rs 6000 per year. The minimum contribution has to be of 1 year. There is one flexibility out here in case of withdrawal. There is an option to withdraw early i.e. before the age of 60. It might be due to some urgency because of severe illness, big expense coming your way, sudden death or mishap. And the other is of course to withdraw when you retire normally at the age of 60. In a country like India, where social security schemes are practically non existent for those in the unorganized sector

Killed by Inflation

One can meet more people these days at weddings and funerals than at any other place. A couple of months ago, attending the wedding of a niece, I heard the story about one of my aunts. She had been invited to the wedding but was unwell. So she had sent her two sons to attend the wedding on her behalf –with a letter. The letter came with an intriguing stipulation – that it had to be handed to the bride’s mother – her sister-in-law or to the bride herself and no one else. The two sons who made a somewhat hurried exit from the wedding left the letter with the bride’s mother as they hurried out. They stayed quite a distance from the wedding venue and had to return.

In the busyness of the wedding, the letter remained unopened. The wedding guests departed slowly one by one and the letter remained buried in the purse where it was randomly tucked in on the wedding night. There it remained until the news arrived a few weeks later of the death of the aunt in question. At that point, memories were juggled and someone remembered the forgotten letter and after a lengthy search, the letter was finally found and read.

To say that the contents of the letter shell shocked my middle class family is to put it relatively mildly. For in that final letter, my departed aunt, unable to come herself to the wedding and meet anyone had poured her heart out in a letter which she had obviously hoped would be read in her lifetime.

My aunt’s letter described the effects of inflation far better than an economist would be able to, for if inflation is a pandemic, a contagion, then my aunt was one of those felled by it, much as dengue or cerebral malaria or cholera might claim its victims. She described in detail how the modest poultry business her two sons were running for a few years was ruined, first by the onset of bird flu and then the subsequent panic leading to reduced demand in the city. Just when they were beginning to recover and get back on their feet again, inflation began rising and once again the demand failed.

The only steady income in the family was a meager family pension due to my aunt on account of her late husband’s government service. Of late, it was not just the only steady income; it was the only income with her sons’ business in liquidation. The family was faced with a Hobson’s choice - was the pension money to be used to buy provisions and groceries for the family or to buy medicines for my aunt’s several age related ailments.

The decision was made more complex by the fact that the meager family pension would continue only as long as she lived but she finally cast the die and decided that she would wither away so that her sons could live as the little pension money would not allow her to buy any medicines after the groceries were bought. A couple of months later, she was dead. Unlike the many farmers in Maharashtra and else where who need to commit suicide when life becomes unlivable, she was spared that expense. Crude oil prices set somewhere in the New York Stock Exchange and the spiraling inflation took care of that.

Inflation has always been presented to us in newspapers and business media as an economic phenomenon. All the inflation-related fire fighting has been done by macro-economic bodies like the Reserve Bank whose tools are graphs, tables, prediction and politically-laced policy inputs. But these erudite economists need to know that while globally, inflation may be studied as an economic phenomenon, in India’s huts and homes, it is a rapidly spreading infection and potentially fatal among the particularly vulnerable.

In the absence of a prescription, the casualties are rising.