New Rules: A circular has been issued in this regard on September 22, 2023. Let us tell you in detail.
Pension New Rules: Pension Fund Regulatory and Development Authority (PFRDA) has changed the rules for government employees. Now default scheme option has been introduced in NPS Tier II accounts of employees. With this, they will be able to choose the Pension Fund Manager (PFM) and the range of returns in percentage for their PF investment. PFM will invest their funds as per the options chosen by the account holders.
The default scheme option, designed to provide investors flexibility in investment of PF funds, was till now available only to NPS Tier I account customers.
The Pension Fund Regulatory and Development Authority (PFRDA) has issued a circular in this regard on September 22, 2023. “It has been decided to launch NPS Tier II Default Scheme exclusively for government sector subscribers,” PFRDA said in the circular.
What is the default plan, what will change?
Abhishek Kumar, SEBI Registered Investment Advisor (RAI) and founder of Sahaj Money, said that NPS Tier II account holders will now have to choose their pension fund manager (PFM) and percentage. PFM fund will invest their PF fund accordingly.
The management of the default scheme fund has been entrusted to three pension fund managers (PFMs) – SBI Pension Funds Pvt Ltd, UTI Retirement Solutions Ltd and LIC Pension Fund Ltd, to whom funds are allocated in a fixed ratio. As per available details, 85% of the investment is made in fixed income instruments and 15% is invested in equity and equity related instruments.
Flexible option – Investors who do not have much understanding of financial investments but want to invest in NPS Tier II fund can start with the default option. As investors’ understanding increases over time, they can make changes to their portfolio as per their financial goals and risk appetite.
Kumar said, it is clear that government employees will no longer need to choose the percentage of their allocation in PFM and NPS Tier II account.
This default scheme is an additional option which has now been made available to public sector customers who invest in NPS Tier II. Apart from this, other existing investment options like equity, corporate debt and government debt will also remain available as before.
How will Tier II Default Scheme help?
Kurian Jose, CEO of Tata Pension Management, said that the default scheme provides many benefits to PF investors, such as there is no lock-in period, as well as the facility to exit this option at any time.
Its cost is low and there is no mandatory or minimum contribution restriction. Therefore, this step will provide a simple option to government sector employees to invest in NPS Tier II.
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