Tuesday, May 12, 2009

NEW PENSION PLAN - FEW PROBLEM AREAS TO BE IMPROVED UPON

New Pension Plan has been opened up for everyone in India with effect from 1st May 2009. While its a very good saving scheme aimed at providing everyone with an option to save for pension , it has few problems or disadvantages which the government will do well to iron out.
In my view , few of the problems with the New Pension Plan are as under:-
1. No Tax Benefit on Maturity Proceeds - New Pension Plan works on EET tax regime. This means that while the contribution and the interest on the contribution is tax free under this plan, the maturity proceeds are taxed . This is not the case with other long term savings plan like PPF, PF, NSC etc which operate on EEE (Exempt.Exempt,Exempt) tax regime. This makes the NPS a little less attractive in its current form . The government needs to bring about uniformity in tax treatment to this plan as well by making the maturity proceeds tax free.
2. Very Little Awareness about NPS- While NPS has been launched , there is not much awareness about it among the masses. This is because of the lack of promotion on part of the government. In contrast, we are inundated with promotional campaigns from insurance companies regarding their own pension schemes. Max New York will tell you "retirement ho to aisa" while Religare Aegon will urge you to find your own pension amount. The same is true for whole host of other insurance companies. But sadly, there is very little promotional effort going in towards making NPS popular. The government needs to understand that a good product by itself is not enough. It needs to be promoted well so that its received well by the masses.
3. Banks yet to sell NPS at full throttle- DNA newspaper did a reality check on the preparedness of banks nominated to sell NPS in Mumbai, by checking with the respective banks about the availability of forms etc. Most of the bank officials very not very sure about the way NPS works . This was obviously due to training issue, which is expected to be sorted out in due course. Another potential threat to success of NPS could be the danger of bank officials trying to convince the NPS customers to buy the pension plans from insurance companies. This is a possibility since banks get more as commission on insurance company's pension. PFRDA needs to keep a tab on this. Also as a customer , we need be more aware of this. Insurance company's pension plan is not same as NPS.
These problems notwithstanding, NPS is a revolutionary product which is superior to all other pension plans available in India as of now. Once these problems are sorted out, this will become even better and customer friendly.

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