Regulator also planning to raise entry and exit age limit for national pension system
The Pension Fund Regulatory and Development Authority of India plans to open a 30-45 day window to allow on-tap licences for new pension fund managers. At the same time, the pension regulator is also planning to raise the entry as well as exit age limit for the national pension system to allow access to more people, Supratim Bandyopadhyay, the chairman of PFRDA said on Thursday.
“To start with, we will open for one month or 45 days. We will see this experience and thereafter, if required like the RBI, which has kept it open for the entire period (on-tap licences to small finance banks), if that model suits us, we will go for that,” he said on the planned on-tap licences.
Under the existing rule, PFRDA comes out with request for proposals (RFPs) for pension funds every five years. Companies who apply and fail to make the cut have to wait for another five years to reapply. The aim behind allowing on-tap licences is that if an applicant meets the eligibility conditions in between, then the entity should not be made to wait, says Bandyopadhyay.
PFRDA had floated an RFP for new pension fund managers in mid-December. The pension fund regulator has cleared the application of Axis AMC; it will become the eighth NPS fund manager. The existing seven NPS fund managers include Aditya Birla Sun Life, HDFC Pension Management, ICICI Prudential, LIC Pension Fund, Kotak Mahindra Pension Fund, SBI Pension Funds Management and UTI Retirement Solutions.
PFRDA has also raised the capital requirements for pension fund managers to Rs 50 crore from earlier Rs 25 crore. While new fund managers will have to meet the condition up front, existing fund managers will be given six months to bring in the additional required capital, said Bandyopadhyay.
Pension funds under NPS typically invest in a basket of equities, corporate bonds and government securities. A subscriber can choose the percentage of the allocation to each segment. The pension, thus, is dependent on the performance of the pension fund. Since inception, the average returns generated by pension funds in equity have been at 12.03 per cent compounded annual growth rate as of March 31, 2021. Returns in corporate bonds have averaged 10.02 per cent and G-Sec returns have averaged 9.66 per cent.
The regulator is now also planning to launch a guaranteed returns product.
“Our pension advisory committee has approved it. We are floating the RFP now and in another one month, maybe you will have an actuarial firm, which will design the product. We are hopeful that in the next few months we will be able to design our first product and bring it to the market,” Bandyopadhyay said.
Typically, the fund managers are only managing the pension fund money, they get the fund management fee out of the corpus and then return the rest to subscribers. In a guaranteed returns product, even if the actual return is falling short of the guarantee, the fund manager has to ensure that the guarantee is maintained. Therefore, the capital adequacy of the pension fund managers is going to be crucial, and will be looked into closely, he said.
Separately, there is also a plan to offer a systematic withdrawal plan like option for NPS subscribers. Currently, subscribers have to channel a portion of the NPS corpus after retirement into annuity schemes. This SWP-like payout plan will give the subscriber an additional option.
As of March 31, the total number of subscribers in pension funds (including central government, state governments, corporates, all citizens model, NPS Lite and Atal Pension Yojana) stood at 4.24 crore. Total assets under management for pension products were at Rs 5.78 lakh crore.
PFRDA’s aim is to add at least 10 lakh new subscribers in NPS in the current financial year, compared with around 6 lakh subscribers added a year ago. It also plans to raise the joining age limit in NPS to 70 years from the current 65. Subscribers who join after the age of 60 will be allowed to continue their NPS accounts till the age of 75.