Keep the faith

The NPS (National Pension System) has recently come back to the news in a somewhat uncomfortable fashion.

An external observer has found the NPS inadequate. After years of simmering discontent, the government recognised its shortcomings and returned a guaranteed employee pension scheme. At least that's the story that the anti-NPS crowd on social media is pitching.

The reality though, is far from this narrative. The NPS is a great retirement scheme for everyone. However, everything gets compared to an alternative. I'm reminded of the comedian who, when asked, "How's your wife?" would say, "Compared to what?" Government employees compare NPS to what they had earlier and want a guaranteed pension. Private savers don't have any such alternative for retirement savings. The options that are available to them include mutual funds, deposits and such. As our cover story shows, the NPS is superior to these.

Psychologically, some government employees think having a guarantee is better than a superior investment alternative. This is (sort of) understandable within the social and psychological context of what a government job means in India. However, for the rest of us, the story is different. We need to save for our retirement, and the NPS is a better option than any.

There's one more reason for the wave of negativity about NPS on social media, which you must appreciate. The ultra-low-cost structure of the NPS is good for savers but bad for intermediaries. There's a whole universe of intermediaries of one kind or another in this country who would like their clients to ignore NPS and instead, put their savings into high-commission investments that the intermediaries are selling. This is the same story of ULIPs (unit-linked insurance plans) versus mutual funds being repeated, albeit with different asset classes. So, take all the anti-NPS propaganda with a large pinch of salt. Don't fall for it.

Consider this: when did you last see a financial product that didn't come with a sales pitch? The NPS stands out precisely because it doesn't line anyone's pockets except yours. Its efficiency threatens the status quo of many in the financial industry, where complexity often masks higher fees and poor performance. Some intermediaries, seeing their commissions dwindle, resort to fear-mongering and misinformation. They'll highlight everything as a systemic flaw, conveniently forgetting the long-term nature of retirement planning. Remember, their interests may not align with yours. In the age of social media, it's easier than ever to spread doubt. But don't let the noise drown out the facts. The NPS's transparent structure and low costs are its strengths, not weaknesses.

Just look at what the NPS delivers. Having been a close observer of personal finance and savers for over three decades, I've seen countless plans for retirement come in and go out of favour. However, the NPS stands out for its low cost, high safety, reasonably high returns and genuine potential for long-term wealth creation. It's not just about the numbers - though impressive, it's about empowering individuals to take control of their financial future.

I often meet people sceptical about the NPS, citing concerns about market volatility or lack of guarantees. To them, I say this: life itself comes with no guarantees. The beauty of the NPS lies in its ability to harness the power of compounding and market growth over the long term. Yes, there will be ups and downs, but that's precisely why the scheme is designed with a mix of investment classes and options. It's about balancing risk and reward, much like life itself. So, before dismissing the NPS based on hearsay or short-term thinking, I urge you to dive deeper into its structure and benefits. Do read our cover story and renew your faith in the NPS.