National Pension System (NPS) launched in 2009 mainly caters to organised sector employees including all government employees in centre and states.
The Pension Fund Regulatory and Development Authority (PFRDA) Amendment Bill that is pending approval in Parliament is set to bring out a slew of changes in the pension system.
While it was to be originally introduced in the Budget Session, both Houses were adjourned sine die. The Bill will now be introduced in the upcoming Monsoon Session.
In a virtual interaction on April 15, PFRDA chairman Supratim Bandyopadhyay said that once the amendment bill is passed, a slew of changes will be implemented in the current pension framework.
These include the National Pension System (NPS) Trust, guaranteed plans and interoperable accounts. Moneycontrol gives you a lowdown on how the Bill will change the life of pension subscribers.
PFRDA has established the NPS Trust under the Indian Trusts Act, 1882. Under this, there is an appointed NPS Board of Trustees which administer the NPS funds vests.
So, this means that all the NPS funds collected under the scheme is the responsibility of the NPS Trust and its trustee bank. They include both government employee funds and private employee funds.
Through the PFRDA Amendment Bill, the government is looking to separate the NPS Trust from PFRDA. This is to ensure that there is no conflict of interest.
Once the Bill is passed, there will be a formal separation of the NPS Trust from PFRDA. In addition, a Pension Trust for employees of private sector companies will be established. This is in tune with the Union Budget 2020-21 announcements.
While PFRDA now allows its intermediaries to use the KYC norms given for mutual funds for opening NPS accounts, there is no standardisation across regulators. Once the Bill is passed, it is likely that the interoperability of accounts across banks, mutual funds, pension funds and insurance could be made a reality.
For customers, this will cut the hassles of submitting multiple KYC documents and forms. Account opening and transfers will be quicker.
Clear demarcation of roles
Once the amendments are carried out, there will be a further demarcation of roles between PFRDA, IRDAI and market regulator Securities and Exchange Board of India (SEBI).
IRDAI would regulate the retirement products and annuities sold by insurance companies, SEBI all pension/retirement plans sold by mutual funds, and PFRDA all the guaranteed pension products, including NPS, Atal Pension Yojana and any newer schemes designed for the younger population.
There are no written rules about which products would be governed by which regulatory entity. The PFRDA Amendment Bill will spell that out.
Guaranteed pension products
Once the Bill is passed, it is likely that there will be guaranteed pension products offering a fixed rate of return for customers. Depending on the risk appetite and age of the individual, there would be products available.
At present, salaried customers have the NPS scheme while those from the unorganised sector have the Atal Pension Yojana.