Starting young is the key to plan for retirement: PFRDA Chairman

For a financially safe and secure retirement, various instruments options starting from mutual funds, real estate, stocks, to NPS, EPF, etc. are suggested by experts. Even though all of these are the most common retirement instruments, experts consider the National Pension System (NPS) as one of the best investment tools for retirement planning in India.

While all types of investments come with their own merits and demerits, investments in the NPS are mostly focused on the retirement of the investor. Along with tax benefits every financial year, with NPS, the investors get a pension during their retirement years. Experts say this scheme is ideal for self-employed professionals, especially those working in the unorganized sector.

During a recent webinar on ‘National Pension System for Corporates’ by the Pension Fund Regulatory and Development Authority (PFRDA) in collaboration with the Confederation of Indian Industry (CII, Delhi chapter), with the theme of ‘Importance of Retirement Planning – Role of NPS’, PFRDA chairman Supratim Bandyopadhyay said that retirement planning is necessary because of the reason that longevity is increasing. He added, “Now we are into a situation of risk of living long instead of dying early as was the case earlier, and if we live long it will be a problem not only for the individual but also for the society at large. Therefore, one needs to plan early.”

It has been observed from many of the reports on longevity that after retirement at 60 years, people live 17-18 more years. Also, with the advancement of medical facilities people are living longer like never before. Hence, experts say even though choosing one investment tool for such an important part of life can be confusing, not investing in the right instrument could mean losing out on the potential returns on the investment.

Therefore, it’s better to understand these investment instruments to make an informed decision. For instance, National Pension System (NPS) offers its investors to choose from 3 options of investment – equity, corporate debt, and government bonds, allowing its investors to have higher exposure to equities, wherein they can fetch higher returns.

Bandyopadhyay said, “In view of making it a core retirement product, we discourage withdrawal in between, and allow partial withdrawal only of 25 per cent of self-contribution three times over the whole accumulation period. Although it’s a market-linked product, our fund managers work under stringent guidelines for safeguarding our subscribers’ money.”

NPS gives a lot of flexibility like the choice of funds, choice of asset allocation and an investor having more risk appetite, he/she can put 75 per cent of his/ her fund in equity. It is a cost-efficient financial scheme, which benefits the subscribers to have a larger corpus as erosion of corpus in the form of charges or fees is minimal.

Investors enjoy full tax-exemption with NPS up to the limit of Rs 1.5 lakh under section 80C. Additionally, one also gets tax-exemption of up to Rs 50,000 under Sec 80CCD (1B). On the employer’s contribution made towards employees’ NPS account, employees can also claim deduction under section 80CCD (2), of up to 10 per cent of the basic salary plus dearness allowances.