The government is likely to propose amendments to the PFRDA in order to give more options to subscribers to withdraw funds at the time of retirement.
The Central government is likely to introduce the Pension Fund Regulatory & Development Authority (PFRDA) in the ongoing Monsoon Session of the Parliament.
The government is likely to propose amendments to the PFRDA in order to give more options to subscribers to withdraw funds at the time of retirement. The amendments also propose bringing underregulated superannuation funds under its purview.
The Bill which is under discussion for several months will also delink the National Pension System (NPS) Trust from the regulator and ensure that FDI is aligned with the insurance sector regulator, according to a report in TOI.
What is PFRDA & NPS Trust
The PFRDA Act, notified in 2014, brought regulation of NPS under the pension regulator. The NPS is a voluntary defined contribution pension system, like Public Provident Fund and Employees’ Provident Fund, is an EEE category instrument in India. It is subscribed by government employees, private institutions, organisations, and the unorganised sectors except for the Armed Forces.
The NPS Trust was established by PFRDA to manage assets and funds under the NPS. The Trust also monitors NPS intermediaries such as intermediaries, including custodians, pension funds, trustee bank, Central Recordkeeping Agency, point of presence, aggregators, and that of IRDAI registered annuity service providers empanelled with PFRDA.
Under the new amendments, the government plans to separate PFRDA regulator from NPS Trust so that regulator and fund management authorities are different. It is likely to reduce the friction between the two tasks.
What is NPS?
NPS subscribers can make minimum annual contributions of Rs 6,000 which can be paid in lump-sum or as monthly instalments of minimum Rs 500. The Trust invests these funds on behalf of subscribers into debt and equity in order to generate returns on the same. The rate of interest on contributions is between 8-10%.
Any Indian between 18 and 60 years of age can opt for the pension scheme currently regulated by NPS. The scheme matures when subscriber reaches the age of 60.
Other likely changes to pension regulatory authority
Several smaller provisions of the bill also aim to give PFRDA powers to recover penalties.
However, the most important change that the Bill proposes is to allow the regulator to provide additional withdrawal options to make National Pension Scheme (NPS). It is seen that despite offering better returns NPS is not widely popular owing to unfavourable withdrawal options such as mandatory reinvesting some of the maturity funds in an annuity. This takes away the discretion of subscribers about how they want to invest their money upon maturity. The amendment aims to give more options at the time of withdrawal to make the scheme more attractive.
Presently, subscribers can withdraw only 60% of the corpus at the time of retirement and the remaining portion has to be used to buy annuities.
Although the detailed provisions of the Bill are still in the works, according to the TOI report, the pension regulator wants to allow subscribers to invest in systematic withdrawal plans which will give a regular income upon retirement. Another option might be inflation-indexed annuities with 10-year government securities as the benchmark. Another option could be to invest a part of funds in the deferred annuity for better returns.
