ULIP Vs New pension plan

Please read the earlier articles for continuity.

The PFRDA (Pension Fund Regulatory and Development Authority) bill is still pending in the parliament and only after the parliament approval the things will look clear. Even the PFRDA stated that other investment option mainly the equity investment will be available only after the parliamentary approval.

The New pension plan offered to Govt is similar to what is offered by the Insurance companies under ULIP Plans. The difference is that the private sector employee has to opt for a plan available with any of the insurance companies. The disadvantage in that case and the truth is that many of the well paid employees does not even think about retirement and they have the tendency to overlook this aspect. They realize the importance of the pension only at the last stage and the premium outgo at later part of the life is huge and they lose the time and the compounding benefit. To some extent these disadvantage is mitigated in the new pension scheme and it is made compulsory on the new recruits to Govt now and knowingly or unknowingly they start contributing towards pension.

The scheme of working of new pension plan and the charges like premium allocation charges, fund management charges, policy administration charges, the mortality charges etc not known now. Normally in the ULIP plans these charges are very high and they are collected within 05 -10 years of the plan though pension plans normally continue for 25 – 30 years. This is a great disadvantage to the employees since now the best performing fund may turn worst performer after some years and by collecting their premium well in advance the people are forced to continue in the scheme.(The details of pension plan are covered in earlier articles)

Since PFRDA invited bid for fund management, the insurance companies are forced quote at lower rates to bag the lucrative big money the charges collected by these companies will be hopefully lower than what is charged in the market. Further the Govt employee does not choose any specific AMC for his investment and the risk could be lower since his investment is diversified in many AMC's selected by PFRDA. The clear cut picture will emerge only after the bill is passed in parliament and all the options of A , B & C is allowed to employees and the charges are made known.