The Pension Fund Regulatory and Development Authority (PFRDA) has commenced work on designing a minimum assured returns scheme (MARS) under the National Pension System (NPS) architecture, and it will be rolled out in “near future,” PFRDA chairman Deepak Mohanty has said.
“The minimum assured returns scheme has been in the works for some time. It is very much on our agenda. Our statute also requires that we ought to offer this guarantee,” Mohanty told Moneycontrol in an exclusive interview.
However, if a guarantee is offered, the cost will go up too. At present, the low-cost structure is one of the key selling points of the NPS. The maximum investment management fee that pension fund managers can charge is 0.09 percent if the assets under management are less than Rs 10,000 crore.
For the Rs 10,000 crore to Rs 50,000 crore slab, the charges are up to 0.06 percent, while the AUM bracket of Rs 50,000 crore to 1.5 lakh crore will attract charges of up to 0.05 percent. If assets under management are over Rs 1.5 lakh crore, the maximum charge allowed is 0.03 percent.
Also read: NPS sees remarkable 650% growth in voluntary subscribers' AUM, outpacing other segments
“The low-cost pension funds are very thinly capitalised, because it's mostly a pass-through vehicle. If you bring in a guarantee, that will change. There will be additional capital and solvency requirements, besides the cost of guarantee,” Mohanty said.
The guaranteed return will have to be alluring enough to attract subscribers who might be risk-averse. “You will have to provide a return which should look attractive to the market,” he said.
At the same time, costs and risks will have to be borne in mind. “The risk, cost, and returns need to be balanced,” Mohanty said.
While work on designing the product is in progress, no specific deadline has been set for its rollout.
“It should fructify, but I cannot give a timeline. We should be able to come up with something in the near future,” Mohanty added.
The NPS was initially launched for central and state government employees on January 1, 2004. Subsequently, in 2009, it was offered to all individuals, whereby citizens could voluntarily contribute to build a retirement kitty and ensure regular pension income.
As per PFRDA data as on May 27, 2023, since inception, pension funds have generated a 9.49 percent annualised returns under the central government scheme, while the state government scheme has delivered 9.35 percent returns.
Its equity scheme – open to all Indian citizens – yielded 12.5 percent returns, while scheme C (corporate bonds) and scheme G (government securities) logged 9.26 percent and 8.84 percent returns, respectively, since inception.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
