National Pension System: PFRDA makes 5 key announcements
With 38 per cent growth in AUM and 23 per cent in number of subscribers, the awareness around retirement product National Pension System is growing under the agile supervision of Pension Fund Regulatory and Development Authority of India (PFRDA). The pension regulator will soon be launching key changes to make it more attractive, expanding its reach across India. Here is what all is in the pipeline:
1) Maximum entry and exit age to be hiked
Currently, people in the age group of 18 to 65 years can join the NPS. The regulator is mulling over hiking it to 70 years. The exit age may also be revised to 75 years from the current 70 years. “When we hiked the entry age to 65 from the 60 years, more than 15,000 60-plus people subscribed to the NPS. With the longevity increasing, it makes sense to hike the maximum entry and exit age to 70 years and 75 years, respectively. These are just enabling conditions – not mandatory,” says PFRDA Chairman Supratim Bandyopadhyay.
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2) Commute the full amount
NPS subscribers can commute 60 per cent of their investment after retirement, while 40 per cent has to be parked with one of the insurance companies to receive pension. However, those who end up accumulating only up to Rs 2 lakh by the retirement age are allowed to withdraw the full amount. The PFRDA now considers hiking it to Rs 5 lakh. “This is also an enabling condition. If a subscriber does not want to commute the full amount, they may go ahead with the annuity option,” he says.
3) Minimum assured return
Since NPS is a market-linked product investing in equity, corporate bond and government securities, one cannot predict the overall return that one may earn by the retirement. Keeping conversative investors in mind, the pension regulator will soon launch a pension scheme offering minimum assured return to the subscribers. “The pension advisory committee has already given an approval to the guaranteed product. Now the actuarial firm will design it. We expect to launch it in the next one or two months,” says Bandyopadhyay.
4) Innovative payout options
The subscribers have to park 40 per cent of their NPS corpus with one of the 12 insurance companies empaneled with the NPS. Bandyopadhyay acknowledges that the annuity rates have come down drastically – so much so that if one opts for return of purchase price option in annuities, the interest rate varies between 5 and 6 per cent. “Since annuity is taxable, if you take into account the taxes and inflation, you end up making negative return. This is why we want to offer innovative payout options,” he adds.
The regulator is mulling over allowing subscribers to retain 40 per cent with the pension fund managers to earn better return. “We are also looking at a mixture of annuity and systemic withdrawal plans. We are getting actuarial firms to look into the viability of it,” he says.
“The moment you think about such a scheme, you have to take IRDA and SEBI on the same page too so that they are clear that we are not trailing into their area,” he adds.
5) Widening the distribution network
Currently only institutions can get a distribution licence. They are called Point of Presence (POP). “We are expanding the distribution channel. We are exploring if we can have individuals as our distribution partners. However, we do not have wherewithal to hire individual PoPs. Existing POP can recruit them as their sub-entities. Besides, we will soon be rationalising the commission fee for POPs as we did for pension fund managers on fund management fee,” says Bandyopadhyay.
Source : BusinessLine