Tag: pfrda

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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PFRDA expects addition of 1 crore new subscribers to APY in FY22

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Pension Fund Regulatory and Development Authority (PFRDA) expects to add about one crore new subscribers to the government’s Atal Pension Yojana (APY) pension scheme this fiscal.

The Atal Pension Yojana, a guaranteed pension scheme of the Government of India and administered by PFRDA, continues to attract new enrolments supported by aggressive canvassing by intermediaries such as public sector banks, private sector banks, regional rural banks, small finance banks and co-operative banks among others on the back of growing awareness about future financial planning among the people.

“Total enrolments have crossed more than 30 million. In this fiscal alone, we have added a little over 4 million new customers to the APY scheme. Every day we see the numbers go up. On an average, we add 30,000–35,000 subscribers on a daily basis. Looking at the kind of growth we are getting, we feel we can add 10 million new customers under APY in 2021-22,” Supratim Bandyopadhyay, Chairperson, PFRDA, told BusinessLine.

Changing mindsets

The APY scheme has seen a growth of about 27 per cent as of September. Last year was also good and this year it was even better. In NPS, the growth is significantly higher at about 60 per cent, Bandyopadhyay said.

Also see: Improved revenue structure for NPS’ Point of Presence coming soon, says PFRDA Chief Bandyopadhyay

“Over the years, the mindset of people has changed positively towards pension schemes. Now people are really thinking about post-retirement and financial plans. I think the Covid-19 pandemic has also been a trigger for people to think seriously about the need to save for a rainy day. In the past couple of years, including the worst pandemic phase, our on-boarding rate didn’t drop. There was no negative rate in any month,” he added.

Unorganised sector

To a question on coverage for the unorganised sector, he said that with the APY scheme, which allows people in the age group of 18–40 years to join through the bank or post office branches through a savings bank account, a decent progress has been made to cover workers in the unorganised segment.

“It is an ongoing process. Because the number of people in the unorganised sector is so huge — about 45 crore. I think we have reached a little over 3 crore people. It may be low. But what gives us hope is that intermediaries such as banks, RRBs, SFBs have taken it as a mission to bring more people under APY coverage. They are doing a great job,” he added.

Different stratergies

He pointed out that while RRBs in Kerala were following different strategies to reach more people, Airtel Payment has done impressive work and has enrolled more than 1 million subscribers. Banks have engaged self-help groups and banking correspondents to reach out to more people.

Also see: Pension fund sponsors: PFRDA to open ‘on tap’ window next year, too

On the Amendment Bill, PFRDA was hoping that it would be considered during the winter session of the Parliament. It is with the Cabinet as discussions with all stakeholders are over and inputs have been incorporated.

We hope it will be taken up during the winter session, added Bandyopadhyay.

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KVG Bank bags two PFRDA awards

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Our Bureau

Karnataka Vikas Grameena Bank (KVGB) sponsored by Canara Bank Bank has bagged two awards from Pension Fund Regulatory and Development Authority (PFRDA) for significant enrolment under Atal Pension Yojana (APY).

P Gopi Krishna, Chairman of KVGB, who received the awards from Supratim Bandopadhyay, Chairman of PFRDA in a summit at Chennai on Monday, said so far the bank has enrolled (cumulative) 2.30 lakh accounts under APY. During 2020-21, the bank enrolled 68,961 accounts against the target of 38,160, he said.

KVGB is playing a pivotal role in implementing all the three social security schemes (PMJJBY, PMSBY and APY) launched by Central government, he said.

KVGB has a business turnover of ₹28,410 crore with a clientele base of nearly 90 lakh in nine districts – Dharwad, Gadag, Haveri, Belagavi, Vijayapura, Bagalkot, Uttara Kannada, Udupi and Dakshina Kannada – of Karnataka.

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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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Improved revenue structure for NPS’ Point of Presence coming soon, says PFRDA Chief Bandyopadhyay

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Pension regulator PFRDA (Pension Fund Regulatory and Development Authority) is currently undertaking a comprehensive review of Point-of-Presence (PoP) revenue structures and new rates are expected to be available in a month, its Chairman, Supratim Bandyopadhyay, said on Friday.

“We have formed a committee for this purpose. The report is expected in a month,” Bandyopadhyay told a press conference on the occasion of ‘NPS Diwas’.

From this year, October 1 will be celebrated as ‘NPS Diwas’ every year, he added.

Also see: Fund Query: Should investors over 60 go for the NPS?

PoPs are the first points of interaction of the National Pension System (NPS) subscriber with the architecture. These entities provide services related to NPS to contributors. Such entities include banks, non-banks and various fintech companies.

The proposed move to revise PoP compensation structure is expected to motivate them to sell more NPS to citizens across the country. It will come at a time when several PoPs have conveyed to PFRDA that the individual agents or business correspondents (in the case of banks) appointed by them will also start distributing NPS as a product.

Individual distributors

PFRDA has already, in June this year, made changes in regulations to allow even individuals to work as distributors of pension products. This has paved the way for those working as insurance agents or mutual fund distributors to also distribute NPS.

Earlier, only institutions were given the licences for distribution, and the regulator had allowed entities such as banks, NBFCs and certain non-bank entities categorised as PoP to work as distributors.

Strong growth

Meanwhile, Bandyopadhyay also said that the number of new NPS subscribers onboarded in the first half of this fiscal grew 60 per cent at about 3.25 lakhs against 2.1 lakh recorded in the same period last year. As of September 25, the total assets under management (AUM) of NPS stood at about ₹6.67 lakh crore, he said, adding that PFRDA was well on course of meeting the aspiration of ₹7.5 lakh crore AUM by the end of March 2022.

Also see: Custodians for NPS: PFRDA sets minimum ₹1-lakh crore assets under custody for eligibility

Bandyopadhyay also highlighted that the equity funds of NPS have recorded 13 per cent compounded annual growth rate (CAGR) on a 12-year track record.

“Active fund management has been a huge positive for us. It was our decision to allow active fund management that has helped us achieve this. This would not have been possible in passive fund management,” he said.

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Pension subscriber base rises to 4.53 crore till August, says PFRDA

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The Pension Fund Regulatory and Development Authority (PFRDA) on Friday said the subscriber base under its flagship pension schemes rose by 24 per cent in August this year to over 4.53 crore.

The PFRDA administers two pension schemes — National Pension System (NPS) and Atal Pension Yojana (APY).

“The number of subscribers in various schemes under the National Pension System (NPS) rose to 453.41 lakh by end-August 2021 from 365.47 lakh in August 2020, showing a year-on-year increase of 24.06 per cent,” the PFRDA said in a release.

The numbers of subscribers under APY grew by 33.20 per cent to 304.51 lakh as of August 31, 2021, showed PFRDA data.

Growth in AUM

Asset wise, at August-end, total pension assets under management stood at ₹6,47,621 crore, showing a year-on-year growth of 32.91 per cent, it added.

Of this, the assets under APY stood at ₹18,059 crore, registering a growth of nearly 33 per cent from a year ago.

NPS mainly caters to the organised sector, including the Central and State government employees, autonomous bodies, and private corporations.

Atal Pension Yojana (APY) targets the workers in the unorganised sector, which generates the bulk of employment in the country.

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NPS subscribers may get better payout options to offset low annuity rates

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You have worked hard to accumulate that sizeable corpus in the NPS in the hope of comfortable sunset years.

Then, at the time of retirement, you realise that 40 per cent of that National Pension System corpus will have to be statutorily parked in annuities, whose returns don’t even beat retail inflation. Don’t despair. Now, there is hope for retirees as pension regulator PFRDA is moving to offer NPS subscribers a wider menu of payout options to choose from on retirement and offset the low rates of annuities.

For this and given that insurance regulator IRDAI is taking time to offer inflation-linked returns products, the pension regulator is now moving to seek statutory backing for offering products with different payout options and linked to market rates. Currently, the regulatory norm requires a person on retirement to invest at least 40 per cent of the NPS funds in annuities. Given the low interest rates in the financial system, the annuity rates are quite low (lower than the official consumer price, or retail, inflation), which has left retirees high and dry.

“In the PFRDA Amendment Bill, which has now been approved by the legislative department, an explicit provision has been added to allow PFRDA regulated products. Our Pension Fund Managers will offer such products that will give regular payouts, but not in the nature of annuities. These products will try to address longevity risk and also offer returns closer to market rates,” Supratim Bandyopadhyay, Chairman, PFRDA, said.

Bandyopadhyay said the current PFRDA law stipulates that exit can be only through annuities. “No other route is legally permissible and so we need to amend this to offer other types of products,” he said.

The proposed Bill missed the recent Monsoon session, he said, and expressed confidence that the version approved by the legislative department will be soon taken up by the Cabinet for approval and then go to Parliament for enactment.

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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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PFRDA throws FDI door wide open for Pension Funds

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The legal decks have now been cleared for foreign companies to hold — directly or indirectly — up to 74 per cent stake in pension funds with the pension regulator PFRDA notifying the new revised limit. Foreign investment limit in pension funds was earlier capped at 49 per cent.

The Pension Fund Regulatory and Development Authority (PFRDA) has for this purpose amended the Pension Fund regulations. This latest move comes on the heels of the pension regulator opening from June 30 an “on tap” window for grant of licences for pension fund managers. Such a window allows applicants to seek licence at any time, thereby quickening the entire process on setting up business.

In India, pension funds would have to necessarily operate as corporate entities.

With the latest move, the FDI limit in pension funds are aligned with that of insurance sector. In March this year, Parliament had given its approval for raising FDI limit in insurance sector to 74 per cent from 49 per cent. Finance Minister Nirmala Sitharaman had, in her Budget speech this year, announced an increase in FDI limit in insurance sector to 74 per cent from 49 per cent earlier.

It maybe recalled that the PFRDA Act links the FDI ceiling for the pension sector to the ceiling level prescribed for the insurance sector.

Prior to the latest PFRDA move, the regulations stipulated in the eligibility criteria mentioned that an applicant, for being a sponsor of a pension fund, cannot hold more than 49 per cent stake in the pension fund.

The FDI limit hike in pension funds comes at a time when India’s pension assets under management (AUM) are growing at a frenetic pace and touched ₹6.2-lakh crore, as of July 10 this year.

PFRDA Chairman Supratim Bandyopadhyay had in May this year said that PFRDA was now looking at an AUM target of ₹7.5-lakh crore by the end of March 2022.

In the last two years, PFRDA has been taking several steps to enhance the number of players in the pension sector. It had revamped the fee structure for pension fund managers and revised the capital requirement criteria for sponsors so that both of them are strong enough to ride the current growth wave in the pension sector.

A sponsor — individually or jointly — should now have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible net worth of atleast ₹50 crore on the last date of each of the preceding five financial years.

There are now eight Pension Fund managers for the National Pension System in the country — SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund Aditya Birla Sun Life Pension Management and Axis asset management (the most recent entrant and whose pension fund is yet to be operationalised).

PFRDA expects India’s pension sector assets to grow to ₹30 lakh crore by 2030 and this could be a good reason why more foreign pension fund management players could look “more seriously” at entering India in next few years, say pension industry observers. Also the fact that foreign companies can now have controlling interest in the pension funds in India will encourage them to enter this market, they added.

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