From today, manage your own pension

Starting 1st May 2009, anybody can invest in a pension fund with the Pension Fund Regulatory and Development Authority (PFRDA). The scheme is similar to the one currently in operation for central government employees, which yielded an average return of 14.5% in 2008-09.

Under this National Pension Scheme (NPS), money invested in the pension fund during the working life of the investor will come back partly as a lumpsum and partly as an annual payment or pension.

The fund gives investors the option of deciding what level of risk they want to take, given the fact that higher returns are typically associated with higher risk investments. The fund will be invested in three kinds of assets — equity, government bonds and corporate bonds — and it is for the investor to decide how much should be invested in each of these.

Investment in equity is, however, subject to two significant caveats.
First, it cannot be more than 50% of the amount in the investor's account.
Secondly, fund managers cannot invest in shares of individual companies, but only in index funds linked to the BSE's sensex or the NSE's Nifty.

For those who would rather leave it to experts to decide what the balance should be, there is `auto choice' option. Under this option, for those aged 18-36, 50% of the amount in their pension account will be invested in equity, 30% in corporate bonds and the remaining 20% in government securities. From age 36 onwards, the proportion of investments in equity and corporate bonds will decrease annually while that in government securities will increase till the mix reaches 10% in equity, 10% in corporate bonds and 80% in government securities at age 55.

Under the scheme, you can invest any amount, though tax benefits will be available only up to Rs 1 lakh under Sec 80C. The minimum annual contribution, however, has been mandated at Rs 6,000. The fund will be managed by six fund managers, appointed by the government at annual fees of 0.0009% of the invested amount, which is less than one paise per Rs 100. The fund managers appointed by the PFRDA are SBI, UTI Asset Management, ICICI Prudential Life Insurance, Reliance MF, IDFC Mutual Fund and Kotak Mahindra.

To open a pension account, you will have to approach the branches of any of the 22 `point of presence' (POP) service providers selected by the authority. These include State Bank of India and all its seven subsidiaries as well as ICICI Bank and Punjab National Bank. PFRDA Chairman D Swarup said that to start with there would be around 300 POPs in the country, which will soon be ramped up to more than 10,000.

The investor's account will be kept by a record keeping agency appointed by the PFRDA. However, the investor will need to interact only with the POP, where he can deposit his annual/monthly contribution. The scheme gives the investor the option of shifting from one fund manager to another, merely by instructing his POP to do so. The POP will inform the same to the record keeping agency, which will shift the fund to the new fund manager, selected by the investor.