PFRDA to roll out pension scheme offering minimum assured returns to subscribers in FY22

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October 16, 2020 2:30 AM

However, FY21 is going to be a challenging year due to Covid-induced fall in equity and debt market. In aggregate, 80% of the NPS corpus is invested in debt (G-secs and corporate bonds) and 20% in equities.

The PFRDA is also inviting fresh proposals for managing the assets under NPS and is willing to offer the fund managers higher fees in order to bring in efficiency.

The Pension Fund Regulatory and Development Authority (PFRDA) will roll out a pension scheme that offers minimum assured returns to subscribers in FY22, its chairman Supratim Bandyopadhyay said on Thursday. The modalities of the scheme will be worked out by March 2021, he added.

Currently, the National Pension Scheme, based on the principle of defined contribution, is market-determined; only the Atal Pension Yojana, which comes under NPS umbrella and is meant for the low-income unorganised sector workers, offers a minimum return (8%).

The PFRDA is also inviting fresh proposals for managing the assets under NPS and is willing to offer the fund managers higher fees in order to bring in efficiency. Currently, NPS fund managers charge a low fee 0.01% of assets under management (AUM), whereas mutual fund managers charge 1-2% or even more.

The AUM for NPS has recorded a sharp increase of 35% to Rs 5.05 lakh crore as on October 10, 2020 compared with Rs 3.74 lakh crore a year ago (the growth in AUM has been a handsome 21% since March 31, 2020, despite the pandemic and lockdown). Bandyopadhyay expects the AUM to rise further to Rs 6 lakh crore by end-FY21.

During the April-August period, withdrawals from NPS corpus was only Rs 60 crore, while the employees provident fund (EPF) withdrawals during the period was around Rs 39,000 crore.

Currently, the schemes under NPS do not guarantee returns or benefits as they are market-determined. The average annual returns have been about 10% in the past 11-12 years for the central government and state government employees, who form bulk of the subscribers’ AUM corpus (81%). The returns over the last one-year horizon has also been around 9-10%.

However, FY21 is going to be a challenging year due to Covid-induced fall in equity and debt market. In aggregate, 80% of the NPS corpus is invested in debt (G-secs and corporate bonds) and 20% in equities.

As per PFRDA Act 2013, the subscriber shall have an option of to invest the funds in such schemes providing minimum assured returns (MARs) as may be notified by the authority. “However, it was not available (December 2019) to NPS subscribers, in violation of PFRDA Act. Thus, it was only after a lapse of five years since notification of the PFRDA Act, that PFRDA had initiated process to design/formulate a scheme offering MARS and even after lapse of more than 15 years since the introduction of the NPS, the subscribers were yet to receive such minimum assurance,” CAG said in its performance audit report for FY18 released on September 23, 2020. “Immediate steps need to be taken for providing MARS to the subscriber for ensuring their social security post retirement,” it said.

Highlighting difficulties faced by it in launching the product, PFRDA chairman said it was found after talks with such product providers that they were ready to provide only ‘capital guarantee’, meaning only the absolute amount invested will be guaranteed. “We are forming a committee shortly and we will have to take actuarial inputs before designing the minimum assured returns scheme (MARS),” the PFRDA chairman said. However, he said such a product will come with a cost as subscribers have to pay a guarantee fee to fund managers.

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