MC EXCLUSIVE Expert panel may design assured 10-year payout products under NPS: PFRDA chairman

PFRDA Chairman Sivasubramanian Ramann

• PFRDA plans NPS products with fixed monthly income for set years, not lifetime.
• Expert panel to explore minimum assured return scheme for retirees
• Pension Bazaar digital platform aims to expand low-cost pension distribution

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India’s pension regulator is working towards introducing National Pension System (NPS) products that can give retirees a fixed monthly income for a defined number of years, rather than for life, as part of a shift to strengthen the pension payout phase.

An expert committee set up by the Pension Fund Regulatory and Development Authority (PFRDA) will explore a minimum assured return scheme (MARS), that could offer certainty of income, such as a fixed Rs 10,000 a month, for a limited period like 10 years, chairman Sivasubramanian Ramann said in an interview to Moneycontrol.

“The aim of this committee is to bring in different types of products and also attempt a minimum assured return scheme called MARS, where such schemes can bring me pension on an assured basis,” he said.

It will give customers more choice at the time of retirement, especially those who may not want or need a lifetime annuity immediately. The aim is to design assured monthly income products that offer certainty for fixed years rather than lifetime payouts, he said.

MARS: assured income but not for life

The expert committee has been asked to look at the payout side of pensions, an area that has received less attention so far compared to the accumulation phase.

The assured income may not necessarily be for life, he said. “It may not be for life, but it will mean that every month I can get 10,000 rupees because I have bought that product. The assured return may be for a 10-year period,” he said.

It will allow people to mix and match products depending on age and needs. “I may go to the annuity at 75 or 80, because at those ages, annuity works better in my favour. Till then I may want some income which I will get from some other pension payout product,” Ramann said. “So we have to provide choices to the customers. It is for them to choose what kind of product they want at which point of time.”

He described the committee’s work as crucial for PFRDA. “Till now we have only been focussing on the accumulation part. We have not been focussing on the pension payout part. So this committee will bring that,” he said, adding the panel is not being rushed and may “run for a while”.

Falling bond yields and asset diversification

PFRDA is also reviewing its investment guidelines to allow wider asset diversification, as government bond yields are expected to trend lower over time.

Ramann said yields on government securities are likely to decline gradually. “We are all expecting GSEC yields to come down as it would in a developed country. Today we are at 6.53 percent, tomorrow it will probably come down,” he said.

Lower bond yields could affect long-term pension returns, making diversification more important. “How do we make sure that the asset allocation that is available for NPS holders becomes robust enough so that we can at least try and continue to give them good returns,” he said.

“Just recently we allowed 1 percent of the total AUM to be in AIFs. Now that is asset diversification,” Ramann said. “So, like that, we have to think what are the other assets that are available.”

Digital push through Pension Bazaar

Speaking about the new digital distribution platform Pension Bazaar, the PFRDA chairman said digital distribution and long-term engagement are critical for expanding pension coverage.

“We need more and more distribution agencies that can take the product across largely on digital rails,” he said. “We have to be able to deliver our financial products at the lowest cost. In spite of the fact that we have increased the distribution commissions a little bit in NPS, it is still one third and one fourth of the mutual fund commissions. So we must have, to the extent possible, digital delivery of the product.”

Pensions are a long-journey product for distributors and customers alike. “This is a product for 25 years, 35 years… because they are there for so long, you can keep engaging with the customer,” Ramann said, pointing out that distributors will see pensions as “a perfect hook for holding the customer” over decades.

The launch of Pension Bazaar will expand pension distribution through low-cost, digital channels, he said. Ramann said digital delivery is essential to keep costs down and make distribution viable. “Only then can we ensure that the distribution system keeps active with the NPS,” he said.