Minimum assured return pension schemes to have varied capital requirements: Report

Pension regulator, PFRDA, is planning to roll out minimum assured-return schemes a few months down the line. These schemes will have varied capital requirements for sponsors of pension funds, reported Business Standard.

Those having higher assets under management (AUM) may have greater requirements of minimum paid-up capital, sources told Business Standard.

The requirement may also change on the basis of the exposure of a scheme to debt and equity, they said. The Pension Fund Regulatory and Development Authority (PFRDA) has given the task of designing the minimum guaranteed-return pension schemes to E&Y Actuarial Services LLP.

At present, the sponsors, individually or jointly, must have a net worth of at least ₹50 crore on the last day of each of the preceding five financial years before they make applications to the PFRDA.

Of that money, a minimum of ₹25 crore should be its capital. It does not vary with the change in AUM or exposure to equity and debt of pension fund managers. The minimum capital requirement is the same for all pension fund managers (PFMs) irrespective of AUM. “There is no differentiation if you are doing mainly equity or mainly debt,” a key source said. 

But this may not be the case with minimum guaranteed-return products.

“The minimum capital we will prescribe will be linked to AUM. Higher minimum capital will be prescribed for those having more AUM. You need capital for meeting the guarantee in case the net asset value falls below assured returns,” the source cited above said.

“In all other products, there is no guarantee and whatever you earn, you pass on to customers after deducting some charges,” he explained. “In case there is a guarantee, you have to pay more if you have greater exposure and hence the minimum capital required will be more,” another source said.

Linked to investment in debt & equity

The minimum requirement would be linked to your investment in equity or debt markets. For instance, if you are giving a 7 per cent guarantee and investing in only debt paper, the minimum capital required will be less than that for the sponsor whose portfolio manager is underwriting 7 per cent and investing 75 per cent in the equity market, said the person quoted above, wrote Business Standard.

It is still being contemplated whether there will be one rate for guaranteed products or more than one, sources said. In case there is more than one, those providing higher guarantees are likely to have higher minimum capital requirements, they added.

Depending on the rate, fund managers can decide to put part of the scheme in equity as well, depending on the choice of subscriber.