The pension regulator has been advised to offer a rate of return in the range of two to seven per cent for a proposed minimum guaranteed return scheme, reported Business Standard. The scheme is planned for launch later this year.
The scheme’s rates of return will depend on a number of factors which include the kind of products offered, government sources said. E&Y Actuarial Services LLP, the consultant to the Pension Fund Regulatory and Development Authority (PFRDA), gave a few scenarios to the regulator on the minimum-assured return scheme.
The scenarios include whether there is single premium or regular premium, whether there is fixed guarantee or variable guarantee, whether the guarantee is linked to yield curve of bonds, movement of interest rates and whether they are linked to Nifty index, reported BS.
PFRDA’s committee will discuss the consultant’s suggestions sometime next month and give its report to the regulator. PFRDA board’s will then consider the report for approval.
While two per cent rate of return seems too low, seven per cent is not bad considering the returns offered by the National Pension System (NPS).
For instance, NPS Scheme A (Tier 1) has given rates of return in the range of 6.59 per cent to 9.71 per cent by seven different pension fund managers in around five-six years of their inception till July this year.
This pension is primarily meant for retirement savings where the subscriber has made a minimum contribution of ₹500 while opening the account. Under this scheme, the subscriber can withdraw up to 60 per cent of the total amount he has accumulated after his retirement. The remaining 40 per cent of the corpus is utilised to buy annuities to secure a regular monthly income source in the form of a pension.