PFRDA to allow 100% equity exposure to NPS subscribers under a new framework

PFRDA to roll out 'Multiple Scheme Framework' from October 1

From October 1, pension fund management companies operating under the National Pension System (NPS) framework will be able to offer plans that allow up to 100 percent exposure to equities. Non-government subscribers contributing to NPS will be able to invest in these schemes.

The Pension Fund Regulatory and Development Authority (PFRDA) has announced the roll out of a new ‘Multiple Scheme Framework (MSF)’ to provide greater flexibility to pension fund managers and more personalised retirement solutions to National Pension System (NPS) subscribers. “The bigger reform is the freedom to pension fund managers to offer new, innovative products customised for different categories, compared to the plain vanilla schemes being offered at present. This was a long-standing demand. We are hopeful that we will be permitted to invest in asset classes such as gold and silver. Also, younger people who were wary of long lock-in period until the age of 60 could find NPS more attractive, now that the minimum investment period has come down to 15 years," said Sumit Shukla, managing director and CEO, Axis Pension Fund.

New structure, fresh options

“MSF is built upon a new architecture where a subscriber, identified uniquely through a Permanent Account Number (PAN) across central recording-keeping agencies (CRAs), will be able to hold and manage schemes within the NPS through PRAN at each CRA. This is a departure from the earlier structure where a subscriber could operate only a single investment choice per tier and associated with one CRA,” PFRDA said in a circular.

Under the framework, pension fund managers will be able to design schemes tailored to suit the needs of specific subscriber persona. For example, self-employed professionals, consultants, media professionals, digital economy (platform-based) workers or corporate employees where employer co-contributions are facilitated and so on. Each scheme will come with least two variants -- moderate and high-risk -- with equity allocation allowed up to 100 percent (up from the current cap of 75 percent) in latter category.

Checks on mis-selling

Pension funds can, if they choose to, also offer a low-risk plan. “Risk-profiling of subscribers shall be based on income or socio-economic parameters to enable informed scheme selection. shall establish an audit mechanism through sample checks to mitigate mis-selling and maintain an audit trail for inspections,” the circular said. All the schemes will come with a risk-o-meter to help subscribers understand the risks involved.

The schemes will have to compulsorily include the term ‘NPS’ and indicate the objective – for instance, growth, wealth builder, power of compounding, pension and so on. They will come with a minimum vesting period of 15 years, subject to option to exit at age 60 or at the time of retirement.

The charge structure 

“The total charges are capped at 0.30 percent of Assets Under Management (AUM) annually, with an additional incentive of 0.10 percent allowed for PFs that attract more than eighty percent new subscribers to a scheme. This incentive is available for three years from the launch of a scheme or until it reaches fifty lakh subscribers, whichever is earlier,” the PFRDA has said.