Guaranteed return NPS products in the pipeline: PFRDA chief

New pension fund managers, higher fund management charges in the offing

You could get an opportunity to buy guaranteed return products from the National Pension System (NPS) for building your retirement corpus. So far, the NPS has remained a market-linked pension scheme. But Pension Fund Regulatory Authority of India (PFRDA) chairman Supratim Bandyopadhyay on Thursday said that an assured return plan was in the works and will be formulated in this financial year.

“(Offering such a product) is part of our Act and we will definitely do it. We are forming a committee and obtaining actuarial inputs to formulate such a product in the next six months. We will then seek a board approval and prepare for the launch,” he said. The roll-out could take longer.

Higher charges

Such a product, however, will come with a separate guarantee charge. “The capital adequacy requirements for such a product will go up. Not only that, there will be a different charge structure too. Wherever there are guaranteed products, there is a guarantee charge,” Bandyopadhyay explained.

On offering systematic withdrawal plans as an option to NPS subscribers at the time of retirement, Bandyopadhyay indicated that the proposal may not come through in the near future. “But we are looking at it seriously and will ensure that it comes out at the earliest. We are taking feedback. It will not be like normal SWP that lasts 10-15 years. It has to last for 25-30 years…through his or her lifetime, given the longevity we are seeing,” he said. An annuity plan guarantees the pay-outs for life. The PFRDA has had interactions with an actuarial firm and is awaiting more presentations on the SWP proposal.

Mutual funds have been offering SWP in their schemes for many years now. But they have gained popularity in recent years on account of people wanting regular income, especially since dividends are uncertain and are now taxed in the hands of the investor.

More fund managers

On the new request for proposal (RFP) to onboard more pension fund managers, the PFRDA chief reiterated that it should be out by November-end or mid-December. “We are expecting the committee report next week. We hope to have a board meeting in November to approve the rate caps and issue the RFP. Then, it will be open for entities to apply,” he said.

Pension fund management fee – as low as one basis point at present – is almost certain to increase. However, the rise is unlikely to be sharp. “We intend to keep it as a low-cost product. The charges will not be close to mutual funds’ in any case,” he said. The pension system’s assets under management (AUM) have crossed Rs 5 trillion, with both the NPS and Atal Pension Yojana (APY) jointly contributing to this figure.

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