NEW DELHI: If you are an existing investor or planning to invest in the government’s flagship social security programme — National Pension System (NPS) — there is great news for you in the offing. The pension fund regulator is working on a scheme that may soon give the subscribers the discretion to choose the fund option that comes with a minimum assured return.
According to latest documents, the Pension Fund Regulatory and Development Authority (PFRDA) has invited an Expression of Interest (EoI) from actuarial firms to design, develop and recommend a minimum assured return scheme (MARS) under NPS that can be implemented under NPS architecture. The proposed structure of the scheme would include exit loads or exit penalty recommendation with respect to MARS (if required), clawback provisions, and guarantee reset period, among others, for subscribers.
On implementation, subscribers will be assured of a minimum return over a specific period. And any lag in the return will be compensated by the sponsor of the scheme. Also there is can be a guarantee reset period that can be set quarterly/half-yearly/annually or any other time period that is decided keeping account of subscriber interest as well as pension funds who comes to offer such a products.
Some aspects, including what kind of guarantee — absolute return guarantees or relative rate of return guarantees (sector and benchmark-based) — can be reasonably provided by the pension funds with recommendation of suitable proposals, need to be examined, said the expression of interest floated by PFRDA.
The applicant, the EoI said, can be a government organisation, public sector unit, partnership firm, limited liability partnership or private limited firm in existence for at least five years.One of the major challenges for this might be that under the scheme’s all citizens model, all citizens are not entitled to contribute 14 per cent of their salary, unlike government employees and corporates. These peculiarities will decide the lock-in period and other things concerning MARS.
Presently, in NPS, there are five pension fund managers, two investment options (auto or active) and four asset classes.
Upon entry into the NPS, the subscriber normally remains invested till the age of superannuation or 60 years, while upon exit from the system, the subscriber is entitled to withdraw up to 60 per cent of the accumulations and the remaining 40 per cent is mandatorily required to purchase annuity from an annuity service provider who will provide monthly pension to the subscriber.
The Pension Fund Regulatory and Development Authority has reached a subscriber base of 2.65 crore in its flagship National Pension System (NPS) and Atal Pension Yojana (APY) schemes and hopes to cover nearly 2.72 crore subscribers by the end of the current financial year. In a break-up, PFRDA said there are nearly 1.45 crore subscribers under APY and the remaining 1.20 crore have NPS accounts.