The Pension Fund Regulatory and Development Authority (PFRDA) is developing a pension scheme that offers minimum assured returns, according to PFRDA Chairman Deepak Mohanty.
The assets under management of PFRDA have reached ₹9.4 lakh crore, but India's pension assets still lag behind those of many developed countries.
The PFRDA is working on a pension scheme that provides a minimum assured return. This product aims to balance risk and return, with the pension fund having to provide more capital due to increased risk. The scheme is still under development, and the return on investment is expected to be attractive.
What is NPS?
The National Pension System (NPS) was introduced by the central government in 2003 to replace the defined benefit pension system with a defined contribution pension scheme. It aimed to provide old-age income security in a fiscally sustainable manner and channel small savings into productive sectors of the economy.
The NPS became mandatory for new government recruits (except armed forces) from January 1, 2004, and voluntary for all citizens from May 1, 2009.
Current status of Atal Pension Yojana
The Atal Pension Yojana (APY) currently has around 5.3 crore subscribers. The target for this year is to enroll 1.3 crore new subscribers, compared to 1.2 crore last year.
The PFRDA aims to increase enrolment in the APY scheme, with regional rural banks playing a crucial role in achieving this target. The APY has generated a 9% return, and the government provides gap funding for the scheme.
Will it affect the costs?
It is important to note that offering a guarantee in the pension scheme will lead to an increase in costs. Currently, one of the key advantages of the National Pension System (NPS) is its low-cost structure. The maximum investment management fee that pension fund managers can charge is 0.09 percent for assets under management (AUM) below ₹10,000 crore.
For AUM ranging from ₹10,000 crore to ₹50,000 crore, the charges are capped at 0.06 percent. In the AUM bracket of ₹50,000 crore to 1.5 lakh crore, the maximum charges allowed are 0.05 percent. If the AUM exceeds ₹1.5 lakh crore, the maximum charge permissible is 0.03 percent.
These cost structures ensure that the NPS remains an affordable and accessible pension scheme for individuals. However, if a guarantee is introduced in the new pension scheme with minimum assured returns, it would require additional capital and potentially result in higher charges to cover the increased risk.
The focus on increasing enrolment in the APY and reviewing the pension system for government employees reflects the commitment to enhancing pensionary benefits. As India's pension assets continue to grow, efforts are being made to align them with those of developed countries.