With an objective to provide a long term savings option to its customers, KGFS has added NPS-Lite (New Pension Scheme) to its product portfolio. NPS-Lite is an initiative of Pension Fund Regulatory and Development authority (PFRDA) for the weaker and economically disadvantaged in the society to enable them to have a secured post-retirement living, so as to provide them with a regular stream of pension as annuities for old age. For KGFS customers, saving in NPS-Lite account now is one of the options to insure against longevity risk (outliving one’s productive age).
As a pilot, this product has been introduced across three branches (Kaikatti, Pulvankadu and Ilangarkudi) in Pudhuaaru KGFS and at Gokarnapur branch in Dhanei KGFS. On the first day 52 customers (24 females and 28 males) among different age groups have registered themselves for this scheme.
How does NPS-Lite work?
Any person between 18 – 60 years of age is eligible to avail the benefit of investing in NPS-Lite. The minimum contribution amount is Rs. 100 at the time of registration. On registration the subscriber gets a 16 digit Permanent Retirement Account Number (PRAN) by a central record-keeping agency. Subscribers can then invest any amount in multiples of Rs. 1. The total amount accumulated depends on contributions and investment returns net of account maintenance and transaction charges. On attaining the age of 60 years, the subscriber is eligible for withdrawal as a combination of lump-sum (maximum 60%) and annuity/pensions (minimum 40%). The subscriber can choose to retire earlier than 60 years of age and withdraw as a combination of maximum 20% lump-sum and remaining as annuity.
For people working in the unorganised sector, the Central government, under its “Swavalmban scheme”, contributes Rs. 1,000 to every subscriber’s account whose annual contribution is between Rs. 1,000 and Rs.12,000. Central government’s contribution of Rs. 1,000 under this scheme is valid for 4 financial years beginning 2010-2011 to 2013-14.
In the event of death of the NPS-Lite customer, the customer’s nominee can either choose to receive 100% of the accumulated wealth as lump sum or transfer the accumulated amount to his/her own NPS-Lite account.
NPS Lite is an essential building block for KGFS’ wealth management strategy as it helps customers to Plan for their retirement, Protects them from longevity risk and Diversifies their surplus in global assets uncorrelated with their current holdings which are usually concentrated in local economies. The product will be rolled out across all KGFS branches starting December 2010.
5 Responses
Very innovative scheme for bottom of the pyramid. Liked the idea and the product concept. I am not sure about the penetration of pension schemes in the BOP segment. The only barrier I see lies in educating the BOP about the advantage of saving for the future. May be your pilot projects have a different output. All the best.
Thanks Pavan. There is an enormous desire to save for old age and other long-term lifecycle goals in rural and low-income markets. However, there has been practically no way people outside the formal sector can access a pension product. Schemes like NPS-Lite will have a huge impact if we can figure out the distribution end.
Very innovative scheme for bottom of the pyramid. Liked the idea and the product concept. I am not sure about the penetration of pension schemes in the BOP segment. The only barrier I see lies in educating the BOP about the advantage of saving for the future. May be your pilot projects have a different output. All the best.
Thanks Pavan. There is an enormous desire to save for old age and other long-term lifecycle goals in rural and low-income markets. However, there has been practically no way people outside the formal sector can access a pension product. Schemes like NPS-Lite will have a huge impact if we can figure out the distribution end.