Tag: NPS

3 important things to note about NPS annuity

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The National Pension System (NPS) is one of the preferred retirement options, thanks to its low cost structure and tax advantage. But one thing that concerns investors is the mandatory requirement to lock into an annuity product on exit. The requirement to purchase an annuity is for providing a monthly pension after retirement. If you are planning to enter the NPS or are an existing subscriber reaching your retirement age, here are some of the important factors to know about the annuity product.

Under all citizens model, for subscribers on turning 60, it is mandatory to buy an annuity plan with at least 40 percent of the NPS corpus (unless subscriber decides to defer the exit). The balance 60 per cent is paid as lump sum to the subscriber. If the subscriber chooses to prematurely exit from the NPS before the retirement age, at least 80 per cent of the accumulated corpus has to be utilised for the purchase of annuity.

The four main variants of annuities include — Annuity for life (annuity for life time and on death of the subscriber, annuity ceases); Annuity for life with return of purchase price (on death, annuity ceases & 100 per cent of the purchase price is returned to the nominee); Joint life, last survivor without return of purchase price (annuity for life time and on death of the subscriber, annuity will be payable to the spouse for life time. On death of the spouse, annuity ceases); and Joint life, last survivor with return of purchase price (same as earlier, but purchase price will be returned to the nominees on death of the spouse). There’s one more option – ‘NPS – Family Income’, a dedicated annuity option offered only to government employees.

Currently, there are 13 life insurance companies empanelled with the Pension Fund Regulatory & Development Authority (PFRDA), from whom you can select the annuity product. One can use the link – https://cra-nsdl.com/CRAOnline/aspQuote.html – to compare the annuity rates for different annuity variants provided by the all service providers.

Return on investment

When you purchase an annuity, you get a fixed income at the annuity rate throughout life irrespective of interest rate movements. Since the annuity pays you for life-time, it also reduces the risk of re-investment of capital. These benefits come at a cost, though, which get accounted for in the annuity rate.

Currently, the annuity rates for products with the return of purchase price (ROP) are in the range of 5.5-6.6 per cent for an individual of 60 years for an annuity purchase of ₹40 lakh. Though not a perfect comparison, we can look at the return on the ROP annuity products versus that on non-cumulative bank deposits and the Pradhan Mantri Vaya Vandana Yojana (PMVVY). Today, banks are offering 6-6.5 per cent on their ten-year FDs. The PMVVY – with a limit of ₹15 lakh for a single account and a lock-in of ten years – is offering an assured pension of 7.40 per cent per annum payable monthly for all the policies purchased till 31st March, 2022.

There are no investment products that can be compared with the annuity products with no ROP, which pays higher annuity than those with the ROP option. The internal rate of return (IRR), which is an effective way of calculating the return on investment in this case, increases as the subscriber goes on to live longer. For instance, a 60-year old purchases an annuity with annual fixed income of ₹80,000 for ₹10 lakh today. If she lives to 80, her IRR would be just five per cent. But if she lives till 100, then her return jumps to 7.6 per cent.

Annuity products with no ROP can be opted by those with no dependents or liabilities. Note that the income you receive from your annuity plan is taxable at your income tax slab rate.

To overcome the low rates on annuities, PFRDA appears to be working on an option in which the corpus would continue to be managed by pension fund managers but subscriber gets to have periodic payouts, similar to systematic withdrawal plans of mutual funds.

Deferment of annuity

While annuity providers reset the annuity rates periodically, the rate prevalent at the time when you purchase the annuity is applicable to all future annuity pay-outs. Since we are in the low interest rate environment, rates are expected to inch up. Thus, if you are an existing NPS subscriber who is close to retirement and does not need a periodical annuity income, you can defer buying annuity. Also, the longer you defer the purchase of annuity, higher the pension you will get as the number of years over which the insurance company has to pay the annuity comes down. As per NPS rules, one can defer the annuity purchase by 3 years from the time the subscriber exercises the option to withdraw the non-annuity portion (60 per cent, or 80 per cent of the corpus in case of pre-mature withdrawal).

Less scope to alter annuities

Subscribers under all citizen and private sectors can choose from monthly, quarterly, half yearly or yearly payment frequencies (only monthly for government employees). Once an annuity is purchased, the option of cancellation or reinvestment with another annuity service provider or in another annuity scheme is not allowed after the free look period. Surrendering the policy, too, is restricted only to special circumstances such as a critical illness. This would be available only for the annuity option with ROP, however, at high charges.

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Deutsche Bank ready to be NPS custodian for just Rs 100 per year, BFSI News, ET BFSI

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In an ultra-aggressive bid, Deutsche Bank is willing to accept a fee of just ₹100 a year for being the custodian of India’s pension fund which has total assets under custody of more than ₹6 lakh crore across various schemes.

The existing custodian, Stock Holding Corporation of India, a large depository participant owned by public financial institutions, charges close to ₹19 crore for the job.

Other institutions in the race for the custody mandate of the National Pension Scheme (NPS) include Citi, SBI-SG Global Securities Services (a joint venture between SBI and Societe Generale Securities Services), and ICICI. The fees quoted by these organisations are more than ₹1crore.

NPS, launched by the central government and involving multiple asset managers handling one of the largest fund pools in the country, is regulated by the Pension Fund Regulatory and Development Authority.

“It’s a prestigious mandate. So, Deutsche has probably taken a call to make money from a transitory float it could enjoy as a custodian,” said an official of a bank that has not put in a bid.

A Deutsche India spokesman said the bank would not comment on a client mandate.

“Beyond fees, there could be other ways to earn. Discount brokers charge little or nothing from stock traders. But, with so much liquidity available, earnings from float have come down with the fall in overnight rates. It may further shrink with T+1 (settlement in stock exchanges),” said an official of a financial intermediary.

A custodian has the opportunity to enjoy a day’s float by parking some money with the Reserve Bank of India under the reverse repo facility or in the inter-bank market.

Funds into NPS move from the employer (when salaries are paid) to the collection banks following which the money is transferred to custodians when an asset manager decides to invest in bonds and equities. Since investments happen within a day or two, custodians have a limited float.

The Deutsche bid has to pass the test laid down by the finance ministry.

According to the government’s ‘Manual for Procurement of Consultancy & Other Services’, “An abnormally Low bid is one in which the bid price, in combination with other elements of the bid, appears so low that it raises material concerns as to the capability of the bidder to perform the contract at the offered price. Procuring entity may in such cases seek written clarifications from the bidder, including detailed price analyses of its bid price in relation to scope, schedule, allocation of risks and responsibilities and any other requirements of the bid document. If, after evaluating the price analyses, (the) procuring entity determines that the bidder has substantially failed to demonstrate its capability to deliver the contract at the offered price, the procuring entity may reject the Bid/Proposal.”

Recently, a similar bid from another MNC bank for the custody mandate of postal life insurance was rejected on this ground.

While custody is a stable and sought after business, a few institutions have recently changed tack in choosing custodians. Life Insurance Corporation of India (LIC) recently shut the doors to foreign banks in selecting the custodian for its ₹10 lakh crore holding of stocks and corporate bonds. MNC banks lost out as LIC’s condition was that if the bidder was a foreign company or MNC, any of its securities had to be listed in India.



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Nation Pension System AUM likely to rise 30% to Rs 7.5 lakh crore by FY22, says PFRDA chairman, BFSI News, ET BFSI

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Pension Fund Regulatory and Development Authority (PFRDA) Chairman Supratim Bandyopadhyay on Friday said that the corporate sector is showing greater interest in the National Pension System (NPS), which may lead to an on-year 30% rise in assets under management (AUM) on year to Rs 7.5 lakh crore by FY22.

Other key takeaways from the speech

  • Total NPS corpus was at Rs 6.67 lakh crore as on September 25, 2021, up from Rs 5.78 lakh crore as on March 31.
  • Private individual enrolments (excluding Atal Pension Yojana) grew 35% on year to 18.28 lakh as on September 25, 2021, while corporate sector subscribers have shown 20% growth to 12.59 lakh during the period.
  • The Central government employee subscribers grew 4.4% on year to 22.24 lakh as on September 25, 2021, while state governments subscribers grew 10% to 53.79 lakh during the period.

Addition of new fund managers

PFRDA has recently given approval to two new entrants – Tata Asset Management and Max Life Insurance – into fund management of NPS. Axis Mutual Fund is also in the process of joining as a fund manager, Bandyopadhyay said.

Currently, there are seven fund managers – HDFC Pension Management, ICICI Prudential Pension Funds Management Company, Kotak Mahindra Pension Fund, LIC Pension Fund, SBI Pension Funds, UTI Retirement Solutions and Aditya Birla Sun Life Pension Management.

Individual Subscribers

In June, PFRDA permitted the engagement of individuals who are working as business correspondents or agents within their existing business structure for facilitating the distribution of pension schemes.

Bandyopadhyay said individual distributors would play a key role in the expansion of NPS among the masses. The regulator is also examining if the fees paid to distributors could be enhanced from the current rate of 0.25% of the contribution by a subscriber.

With longevity of life and working life going well beyond 60 years, the regulator has enhanced the entry age for NPS to 70 from 65 and exit age from 70 to 75 years, in all citizen and corporate schemes.



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Should those above 65 go for the National Pension System?

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The Pension Fund Regulatory and Development Authority (PFRDA) recently raised the maximum entry age for the National Pension System or NPS from 65 to 70 years.

Should those eligible take the opportunity to invest?

Following the recent rule change, those aged over 65 and up to 70 years can start investing in the NPS and remain invested until they turn 75. Those who had closed their NPS accounts in the past too are allowed to open a new account as per the revised norms.

While there is no official clarification on this from the PFRDA yet, the new rules imply that existing NPS subscribers too can continue to remain invested until 75 years of age as against the current 70 years.

What are the investment choices and tenure options for those subscribing after 65 years of age?

Like every NPS investor, such investors can choose between auto or active choice for their corpus. The maximum equity exposure allowed under these options will be 15 per cent (auto) and 50 per cent (active) respectively.

For those entering the NPS after the age of 65, a ‘normal exit’ can be made after three years of joining. That is, on such exit, they will have to invest at least 40 per cent (tax-free) of their accumulated corpus in an annuity of one of the approved annuity service providers for a regular pension. The remaining 60 per cent (tax-free) will be paid out to them as lump sum. In case of an accumulated corpus of only up to ₹5 lakh, however, they can withdraw it entirely as lump sum. Alternatively, they can remain invested in the NPS any time until 75 and choose to excercise one of the three deferment options – defer only the lump sum withdrawal or only the annuity or both – if market conditions are not favourable at the time of exit. Once a subscriber opts for deferment, no further contributions can be made to the NPS.

An exit before three years will be treated as a premature exit for those entering the NPS after 65 years of age. At the time of such exit, the subscriber will have to use at least 80 per cent of the corpus for purchasing an annuity. Only the remaining 20 per cent can be withdrawn as lump sum. However, if the accumulated corpus totals only up to ₹2.5 lakh, then the entire amount can be withdrawn even though it is a premature exit.

If you are over 65, should you take the opportunity to invest in the NPS?

Not necessarily. While the lock-in until 60 years of age offers a young, early subscriber into the NPS the discipline to remain invested, the same logic may not apply to someone entering after 65 years of age. The NPS helps you build a corpus through investment in a mix of equity and debt. This can be achieved via investing in mutual fund schemes too. The latter is preferable if you need the flexibility to withdraw your money whenever needed.

On exit after three years, at least 40 per cent of the accumulated NPS corpus must be locked in an annuity for a lifelong pension that will be taxed at your income tax slab rate.

Based on the prevalent low annuity rates, the post-tax return (pension income) does not appear attractive, especially so for those in the higher tax brackets.

Today, many NPS annuity service providers are offering monthly annuity for life to a 66-year-old individual at rates of only 5.33-6.31 per cent per annum under return of purchase price (ROP) plan. The returns are better at 8.41-9.28 per cent per annum if you do not opt for ROP.

With someone entering the NPS today, having to opt for an annuity only a few years from now, it remains to be seen if the annuity returns at that point in time are good enough. Also, the PFRDA seems to be looking for an alternative to the compulsory annuity option. Thus, the product features are still evolving.

Thirdly, while a short lock-in of three years is tempting, it must be remembered that NPS is a market-linked product. NPS funds invest in a mix of equity and debt instruments (the latter of a relatively longer maturity). A shorter period may peg up the risk. Holding for ten years up to 75 years of age may make more sense.

Considering all this, the NPS can only be one of the avenues to park your corpus for your silver years. It is best to diversify beyond it.

What other investment options do those aged over 65 have?

For those interested in exposure to both equity and debt, balanced hybrid funds that invest 40-60 per cent of their assets each in equity and debt can be an option. Those interested purely in debt exposure can consider short-duration funds and corporate bond funds with relatively low average maturity of two years or below. The expense ratios may be higher than those for NPS funds but they are more liquid and SWPs (systematic withdrawal plan) can also be initiated if a regular income is needed.

Those who care utmost for principal safety can consider the 5-year senior citizen savings scheme (SCSS) or the GOI’s 7-year floating rate savings bonds (popularly known as the RBI bonds).

The interest rate on the SCSS is 7.4 per cent per annum, which is paid out every quarter. You can invest only up to ₹15 lakh here. RBI bonds too offer an attractive 7.15 per cent per annum, payable half-yearly. While there is a 7-year lock in, you can get the benefit of rising rates, as the interest rate is pegged to the NSC rate (35 basis points over it) and is reset every half year.

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PSBs to make additional provision of over ₹21,300 cr for higher family pension, NPS

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Public sector banks will have to make an additional provision of over ₹21,300 crore annually on account of revision of norms to calculate family pension and higher contribution toward National Pension System (NPS).

“Keeping in view the requirements of the Accounting Standard (AS15R) issued by the Chartered Accountants of India and also as per the Companies Accounting Rules (2006), the incremental provision towards the Family pension as per the actuarial estimate is ₹20,302.9 crore,” a note prepared for the proposal, seen by BusinessLine, said.

The note also mentioned that special dispensation will be sought from the Reserve Bank of India (RBI) to allow provisions over next five years to avoid any immediate adverse impact on the balance sheets of the banks.

On Wednesday, Financial Services Secretary Debashish Panda said the government has approved the Indian Banks’ Association’s (IBA) proposal to increase the family pension to 30 per cent of last salary drawn. In continuation of the 11th bi-partite settlement on wage revision of public sector bank employees, which was signed by the IBA with the unions on November 11 last year, there was a proposal for enhancement of family pension and also the employers’ contribution under the NPS.

According to Panda, the scheme, earlier, had slabs of 15, 20 and 30 per cent of the pay that a pensioner drew at that point of time. It was capped subject to a maximum of ₹9,284. “That was a very paltry sum and Finance Minister Nirmala Sitharaman was concerned and wanted that to be revised so that family members of bank employees get a decent amount to survive and sustain,” he said.

As on March 31, the total number of pensioners stood at around 5.66 lakh and family pensioners at over 1.55 lakh.

 

National Pension System

The system prescribes contributory pension system where originally it was decided that employees will contribute 10 per cent of their basic plus dearness allowance while a matching amount will be provided by the government employer. On December 10, 2018, it was decided that for a Central government employee, the mandatory contribution by the employer would be raised to 14 per cent from April 1, 2019. The same mechanism will now be valid for employees of public sector banks.

“Based on the feedbacks received from the banks, the additional cost on account of increased contribution will be of the order of ₹1,080 crore per annum for all the PSBs,” the note mentioned above said. This will have an impact on nearly 60 per cent (around 4.68 lakh) bank employees out of a total strength of over 7.79 lakh.

Higher payout by the employer would translate into an increase in the accumulated corpus of employees covered under NPS. This will result in greater pension payouts after retirement without any additional burden on the employee. As on date, an employee can withdraw 60 per cent of total corpus for which she/he does not have to pay any tax, while the remaining 40 per cent of the amount utilised for purchasing an annuity from the Annuity Service Provider, registered and regulated by the Insurance Regulatory and Development Authority of India (IRDAI) and empanelled by the Pension Fund Regulatory and Development Authority (PFRDA), is also tax exempt.

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Government gives hefty pension boost to bank employees, BFSI News, ET BFSI

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MUMBAI: The government has announced changes to the pension scheme of public sector banks. For family members of employees, the ceiling on family pension has been lifted and, for current employees, the banks’ contribution to the scheme has been increased by 4 percentage points to 14% from earlier 10%.

“Earlier, the scheme had slabs of 15%, 20% and 30% of the pay that a pensioner drew at that point of time. It was capped subject to a maximum of Rs 9,284. That was a very paltry sum and finance minister Nirmala Sitharaman was concerned and wanted that to be revised so that family members of bank employees get a decent amount to survive and sustain,” said Debashish Panda, secretary in the department of financial services, at a press conference held by Sitharaman.

The second change is that the employer contribution to the New Pension Scheme (NPS) corpus has been enhanced to 14% of the pay from 10% earlier.

The changes are in continuation of the 11th bipartite settlement signed by banks with unions on wage revision last year. In addition to the wage revision, there was a proposal for enhancement in family pension and also the employer’s contribution under the NPS.

A statement issued by the government said that thousands of families of public sector banks will be benefited by the enhanced family pension scheme, while increase in employer contribution will provide increased financial security to the bank employees under the NPS.

Those employees who have been with banks before 2004 are eligible to a defined benefit pension scheme where the monthly payout is determined by a formula based on their last drawn wage. These employees will benefit from the increase in pension limits.

Employees who have joined after 2004 are part of the NPS where the employees and the banks contribute toward a retirement corpus. After retirement, the corpus must be used to buy an annuity from an insurance company that will provide monthly income. The extent of monthly income depends upon the size of the corpus and cost of annuity.

With the fall in interest rate, the returns through annuity schemes have been shrinking, resulting in a call for higher contribution. The insurance regulator is also working with the industry to develop an inflation-linked annuity scheme.



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Consultant for MARS: Pension regulator comes with new RFP

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Pension regulator Pension Fund Regulatory & Development Authority (PFRDA) has come up with a new Request for Proposal (RFP) for appointment of a consultant to help design a Minimum Assured Return Scheme (MARS) under the National Pension System (NPS).

The new RFP has relaxed the eligibility criteria set earlier for a bidder and has now allowed those with experience of designing or development of atleast one scheme with guarantee for its client, to bid for the consultant role, sources close to the development said.

Former RFP

The eligibility criteria had to be tweaked as the response for the previous RFP— issued in May this year— was very tepid with only one entity showing interest, they added.

The earlier RFP mandated that a bidder, which has to be a corporate entity registered in India, should have experience of designing or development of schemes of guarantee with atleast three schemes being in operation or running in India, after being offered by its clients to the public at large. This RFP was cancelled on July 22.

MARS

The whole idea behind having MARS is to have a separate scheme that can offer a guaranteed minimum rate of return to NPS subscribers, especially those who are risk averse. Currently, the NPS gives returns annually, based on prevailing market conditions.

The appointed consultant, with requisite actuarial skills, is expected to help formulate or design a MARS that can be offered to existing and prospective subscribers by the pension funds.

The chosen consultant is also expected to set up a procedure to evaluate and approve basic scheme design modifications by the pension funds and supervise MARS. The consultant would be required to prescribe fees, solvency requirements, risk management and reporting mechanisms for pension funds in respect of MARS.

Pension funds

To enable pension funds and its sponsors to offer MARS like products, PFRDA has already tweaked the capital requirement norms for the sponsors and stipulated higher net worth and paid up capital for those looking to set up pension funds in the country. As such products carry risk, it is better to be well capitalised to take care of eventualities, experts said.

India’s pension assets under management have already crossed the ₹6 lakh crore mark and are expected to touch ₹7.5 lakh crore by end March this fiscal. PFRDA is aiming for AUM of ₹30 lakh crore by the year 2030.

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‘Expense limit should be main criterion for life insurance firms’

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Life insurance companies should be accountable for only one parameter, which is the expense management limit, HDFC Life Insurance Chairman Deepak Parekh has said. The companies should also be permitted to distribute health indemnity and National Pension Scheme, he added.

“Across the world, health indemnity and pension are part of life insurance …Allowing distribution of NPS and health could help improve insurance reach across the country,” Parekh said in his address to the shareholders at the annual general meeting of HDFC Life Insurance on Monday.

Also read: Customer retention is a challenge for HFCs: Deepak Parekh

He further said that discussions are on with the Insurance Regulatory and Development Authority of India (IRDAI) on making expense management limit the main criteria. “This would be similar to the concept of TER or total expense ratio, which is followed by mutual funds as introduced by SEBI,” Parekh said.

The impact of the second wave of the pandemic has been milder and has been largely restricted to the first quarter of the fiscal, he said.

While the second wave impacted life insurance companies, it is expected that business will pick up in the second quarter with the easing of the lockdown restrictions.

Hybrid or phygital model

Noting that the pandemic has increased the awareness of people, including millennials to life insurance, Parekh said the industry has moved to a hybrid or phygital model for offering contactless services.

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No Annuity rider for NPS withdrawals upto ₹5 lakh: PFRDA

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Pension regulator PFRDA has allowed National Pension System (NPS) subscribers with savings of upto ₹5 lakhs in NPS to take the entire amount at retirement without mandating any investment in annuity.

Hitherto, this facility (without annuity rider) was available only for withdrawal of NPS corpus or savings upto ₹2 lakh at the time of retirement.

Simultaneously, the Pension Fund Regulatory and Development Authority (PFRDA) has also raised the premature withdrawal limit on a lumpsum basis for NPS to ₹2.5 lakh from ₹1 lakh earlier, Supratim Bandyopadhyay, Chairman, PFRDA told BusinessLine.

An NPS subscriber can now prematurely withdraw and get a lumpsum of ₹2.5 lakh before reaching the age of 60.

PFRDA has also now extended the maximum entry age for availing NPS benefit to 70 years from the current 65 years. The exit age limit has also been extended from 70 years to 75 years. Prior to this change, Indians between the age bracket of 18-65 years can open an NPS account.

PFRDA’s move to allow NPS corpus of upto ₹5 lakhs to be entirely withdrawn at retirement comes in the wake of low annuity rates in the system.

Currently, the regulatory norms require a person on retirement to invest at least 40 per cent of the retirement funds in annuities. Now with annuities — which tend to mirror interest rate movements in the system — having hit a bottom with falling interest, the regulator has enhanced the limit to ₹5 lakh.

PFRDA Chairman clarified that the facility of entire withdrawal has been made available only for corpus upto ₹5 lakh and if the corpus were to be, say ₹5.01 lakh, the NPS subscriber will have to buy annuities for ₹2 lakh (40 per cent).

“This is the new annuity rule and if corpus amount exceeds ₹5 lakh, you will have to take annuity and be bound by the rule,” he said.

The main reason for increasing the limit to ₹5 lakhs is that the absolute return of annuity is “too low”, and this was the driving force. Even in Atal Pension Yojana, the minimum pension guaranteed is ₹1 lakh, he pointed out.

When asked about how many NPS subscribers can potentially benefit from the latest rule change, Bandyopadhyay said that “large numbers” would benefit, especially those who had opted to keep the monies with PFRDA and not withdrawn it.

“We had analysed why several people had not chosen annuity and allowed the NPS corpus to remain with PFRDA. We had found that lot of them had realised that annuity that they get will be a paltry sum and will not meet their requirements. So they thought that it is better to keep the monies with PFRDA and then it can be seen,” he said.

India’s pension assets under management (AUM) had crossed the ₹6 lakh crore mark in May. PFRDA is now looking at an AUM target of ₹7.5 lakh crore by end March 2022.

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Pension AUM cross ₹6-lakh crore: PFRDA Chief

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The pension Assets Under Management (AUM) have reached a new milestone and crossed the ₹6-lakh crore mark two days back, Pension Fund Regulatory and Development Authority (PFRDA) Chairman, Supratim Bandyopadhyay, has said. It has just taken seven months for addition of ₹1-lakh crore in AUM, which crossed the ₹5-lakh crore mark in October 2020.

“We had initially thought this ₹6-lakh crore AUM would be achieved by end March 2021. But we had missed it out due to market conditions. However, within one-and-half months we have now reached the ₹6-lakh crore level,” Bandyopadhyay told BusinessLine.

It maybe recalled that the pension AUM, as of end March 2021, stood at ₹5.78-lakh crore (₹4.17-lakh crore as of end March 2020).

Bandyopadhyay said that the PFRDA was now looking at an AUM target of ₹7.5-lakh crore by the end March 2022. “I am happy that whatever projections we had made two years back.. we are on track. At this rate, I believe we are on path to reach the projected level of ₹30-lakh crore by the year 2030,” he added.

Variable annuities

Bandyopadhyay said that work is on towards amendments to the PFRDA Act and once this gets Parliament nod, then pension fund managers and even the PFRDA will be in a position to roll out other payout products (such as systematic withdrawal plan) that will be distinct from annuities.

He highlighted that annuity rates in the market have fallen and many retirees are unhappy about the current level of returns.

The need for variable annuities – where the returns vary according to the market related benchmark – has all the more increased, given that annuity rates have fallen in line with sharp fall in interest rates in the system.

Meanwhile, the PFRDA Board has given approval for National Pension System (NPS) subscribers with corpus up to ₹5 lakh to withdraw their accumulations on retirement funds without mandating their investment in annuities. “This decision is expected to be shortly notified. We are also alerted our CRAs to be ready with the changes,” Bandyopadhyay said.

The pension regulator’s Board has also approved extension to the maximum entry age for availing the NPS benefits to 70 years from the current 65 years. Simultaneously, the exit age limit is also being extended from 70 years to 75 years. “This decision will be notified soon and will get implemented this year,” he added.

MARS

The PFRDA has floated a request for proposal (RFP) to appoint a consultant to design Minimum Assured Return Scheme (MARS) under the NPS.

The whole idea behind having MARS is to have a separate scheme that can offer a guaranteed minimum rate of return to NPS subscribers, especially those who are risk averse. Currently, the NPS gives returns annually, based on prevailing market conditions.

The appointed consultant, with requisite actuarial skills, is expected to help formulate/design a MARS that can be offered to the existing and prospective subscribers by pension funds.

The chosen consultant is also expected to set up a procedure to evaluate and approve basic scheme design modifications by pension funds and supervise MARS. The consultant would be required to prescribe fees, solvency requirements, risk management and reporting mechanisms for pension funds in respect of MARS, according to the RFP document.

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