As feedback from National Pension System (NPS) subscribers indicates reluctance to invest in annuities, Pension Fund Regulatory and Development Authority (PFRDA) Chairman Sivasubramanian Ramann says it is looking at alternatives. Assured payouts with inflation protection and step-up systematic withdrawal plans are being vetted, Ramann tells Saikat Neogi and Prasanta Sahu. Edited excerpts.
How are you working to make annuities more appealing?
Our consultation paper proposes diverse pension payment products for NPS subscribers, offering models for wealth maximisation, guaranteed pension, and inflation adjustment. The government supports this approach, and insights from the Unified Pension Scheme (UPS) have been incorporated to enhance flexibility and subscriber choice in retirement planning. The government’s UPS offers dearness relief in pensions. Similarly, NPS products can be designed for the non-government sector.
Will the move to reduce mandatory annuitisation enable subscribers to efficiently utilise their retirement savings?
The existing rule is at least 40% annuity. World over, annuity is not mandated if your contribution to the pension scheme is not mandated. If you are not mandated to save and it is a voluntary savings scheme, like NPS for non-government people, there is no justification for an annuity to be mandated.
Are you consulting with the ministry to tweak the tax structure as well?
Feedback indicates reluctance to invest in annuities. Tax law states 60% of NPS withdrawals are tax-free, and under Section 80CCD5, the 40% annuity portion is not taxed as income. By reducing the annuity portion to 20% of the corpus, subscribers can withdraw an additional 20% corpus with tax implications, taking total withdrawals up to 80%. However, we’ve proposed to the finance ministry replacing part of the annuity with systematic withdrawal plans (SWPs), maintaining the same tax treatment—20% annuity: 20% SWP without any tax implication. Additionally, we urge reinstating Section 80CCD tax benefits in the new tax regime.
Will the new multi-scheme framework (MSF) for non-government sector subscribers make things complicated?
Current pension schemes are complex, requiring subscribers to choose between active or auto schemes and select a pension fund manager. Active choice is particularly challenging. New schemes under the MSF will offer tailored, personalised retirement solutions for different segments. Previously, PFRDA designed these schemes, but regulators should focus on creating frameworks, not products. Pension funds are now developing these schemes to simplify choices and better meet subscribers’ needs.
Will you let pension funds invest in gold ETFs and expand the equity basket beyond the top 200 firms?
Pension reforms are aligning to allow 100% equity schemes within existing guidelines, though PFRDA hasn’t introduced such a scheme independently. Now, pension funds are developing these schemes. Young subscribers, aged 25-30, can handle the risk of equity market cycles by staying invested for 15-20 years, benefiting from equity’s strong long-term performance. One pension fund is designing a “golden years” scheme for those aged 55-58, allowing those who work past 60, to invest for another 15 years.