National Pension System: Now, wider choice of pension funds in NPS

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Updated: July 05, 2021 10:46 AM

PFRDA has issued norms for opening ‘on tap’ registration of pension funds on a continuous basis to manage the pension assets of NPS subscribers.

The pension fund will exercise all due diligence and prudence in carrying out its duties and in protecting the rights and interests of the subscribers.The pension fund will exercise all due diligence and prudence in carrying out its duties and in protecting the rights and interests of the subscribers.

In order to make the National Pension System (NPS) more transparent, increase the subscriber base and ensure orderly growth, the pension fund regulator has taken a host of initiatives easing the process of transacting for the subscribers and the Points of Presence (PoP).

The Pension Fund Regulatory and Development Authority (PFRDA) has now issued guidelines for opening ‘on tap’ registration of pension funds on a continuous basis to manage the pension assets of NPS subscribers under central government schemes, state government schemes, private sector schemes and other schemes regulated by it. It has amended the NPS Trust regulations for monitoring and evaluation of all operational and service level or investment management activities of pension funds, trustee bank, custodians and of central recordkeeping agencies for exits and withdrawals. The regulator has also amended the Points of Presence (PoP) regulations to make them more efficient.

Registration of new pension funds

Every year, the regulator will open ‘on tap’ registration for pension funds for 30 days. The interested entity will have to make an offer for being selected as a sponsor of a pension fund. If selected, it will have to float a separate company to be registered as a pension fund by the regulator. A pension fund is an intermediary which has been granted a certificate of registration by PFRDA for receiving contributions, accumulating them and making payments to the subscriber. The pension fund will exercise all due diligence and prudence in carrying out its duties and in protecting the rights and interests of the subscribers.

The pension fund will be subject to audit of pension schemes by the NPS Trust in accordance with the provisions of the PFRDA (NPS Trust) Regulations, PFRDA (Pension Fund) Regulations and provisions of Investment Management Agreement, etc. The commercial proposal of shortlisted applicants will be evaluated based on the quotes submitted against the applicable Investment Management Fee (IMF) range. The ‘default scheme’ shall be managed by the pension funds which are government companies. The sponsor of a pension fund will have at least five years’ experience of fund management (equity as well as debt market).

The regulator has set a maximum investment management fee based on the assets under management—up to Rs 10,000 crore is 0.09%; Rs 10,000 crore to Rs 50,000 crore is 0.06%; Rs 50,000 crore to Rs 1,50,000 crore is 0.05% and above Rs 1,50,000 crore it is 0.03%. The applicants can quote and charge a lower slab-wise fee subject to a lower cap of 0.03% for each slab. The rates of investment management fee includes brokerage, custodian fee and applicable taxes thereon, subject to maximum brokerage allowed to be charged to the scheme by the Pension Funds at 0.03% (including applicable taxes on brokerage) on equity transactions only. The pension fund will load their investment management fees onto the net asset value on daily basis and the accrued charges (income) will be collected by it at the end of each quarter, from the scheme bank accounts maintained with the trustee bank.

Points of Presence

For PoPs, the amended regulations underline that they have to transfer the contributions received from the subscriber or their employer or deducted from salary of the employees to the NPS Trust account maintained with the trustee bank and upload the subscriber contribution files with the central recordkeeping agency within the timeframe laid down by the regulator.

Every point of presence will have a collection account in the name of “Name of the PoP–Collection Account – name of pension scheme– NPS Trust” and such an account shall be a non-withdrawable account with an option to transfer the funds to NPS Trust account or only in exceptional cases such as wrong entries, unidentified entries or amount not pertaining to subscriber contribution. All PoPs having bank accounts with different nomenclature will have to comply with this condition within 90 days.

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