Pension regulator wants to revamp National Pension Scheme

The Pension Fund Regulatory & Development Authority (PFRDA) is in talks with the government for an overhaul of the National Pension Scheme (NPS), says Mr Supratim Bandyopadhyay, the chairman of the pension regulator.

The revamp would include changes to the tax regime, allowing insurance agents to sell the scheme and launching systematic withdrawal plans as well as annuities indexed to inflation to offer higher returns, he says, in an interview with Times of India. Some of these changes have been proposed for several years.

While implementation of some of the changes has already begun, others such as allowing investors to park their funds into systematic withdrawal plans (SWPs) will require amendments to the law. Currently, NPS subscribers can withdraw up to 60% of their pension funds at the time of their retirement and the remaining has to be used to purchase annuities that will give them an income for the rest of their lives.

In a falling interest-rate regime, many investors do not see annuities as an attractive proposition, prompting the PFRDA to seek inflation-indexed inflation-indexed annuities instead. The matter is currently being studied by a committee.

In the meanwhile, for those with funds of up to INR500,000 ($6,820), rules will be eased to allow to them total withdrawal of their money. “An investment of INR200,000 will not get you much via annuities,” Mr Bandyopadhyay said, referring to the 40% of pension funds that are currently required to be invested in annuities.

In addition, the PFRDA has suggested to the government that income from annuities with the NPS should be exempted from tax up to a certain level, say, INR1m a year, or be subjected to a lower tax rate.

Distribution

Mr Bandyopadhyay says the PFRDA is also looking to register individuals as points of presence (PoPs) or to be part of the distribution network and is willing to pay a higher commission to expand the base. Currently, banks and institutional entities act as PoPs and are paid INR200 for every new customer and 0.2% of the investment as commission.

“For the first time last year, the number of new customers joining from the non-government sector, which was 600,000, was more than the government sector. This is the trend that we will see in the years to come. Slowly, the non-government sector will not just catch up but the AUM will be higher,” Mr Bandyopadhyay said.

Source: Asia Insurance Review