The minimum assured return scheme (MARS) to be launched under the National Pension System (NPS) would have a floating rate that would be reset every year, Supratim Bandyopadhyay, Chairman, Pension Fund Regulatory and Development Authority (PFRDA), told Business Standard.
The PFRDA announced its plan to launch a minimum assured return scheme under the National Pension System in August 2022. The idea is to launch inflation-protected scheme that will offer minimum guaranteed returns to retirees.
Another thing that the investors must make note of is that the product would have a lock-in period of ten years and the assured rate would be benchmarked to the rate of return given on 10-year government security (G-Secs).
The PFRDA chairperson, in the BS interview, emphasised that the guarantee will not be fixed but a floating one.
For example, if the guarantee is fixed at 6 percent in a particular year and later on, there is change in returns given on G-Secs, then the guarantee will also undergo slight change upward or downward based on the change in G-Sec returns.
Variation from G-Sec returns
Another key characteristic is that the rate of return on MARS product of NPS scheme would be lower than that of G-Secs. For instance, if the government security offers 7.5 percent, the minimum assured return would be around 5 percent i.e., 2.5 percent lower.
However, in case the market is bullish, the surplus would be shared with NPS investors. On the contrary, if the market is in bearish phase, and the returns turn out to be lower than the guaranteed returns, the investors will not have to worry about their returns as they — by virtue of being guaranteed — would be protected. The fund manager will have to bear the difference.
Since this is the first time that the PFRDA is set to launch a minimum assured return scheme, the regulator would also release insolvency norms for fund managers in the time to come.
Meanwhile, in another development, the online partial withdrawal from the NPS account via self-declaration became unavailable to government sector subscribers with effect from January 1, 2023.
