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Non-government NPS subscribers may have cause for cheer with pension regulator PFRDA’s Board deciding to do away with the current norm stipulating automatic taper of equity exposure to Tier-1 account when crossing the age of 50 years.
It had also decided to hike the 75 per cent limit on equity under NPS Tier II to 100 per cent, Supratim Bandopadhyay, Chairman, Pension Fund Regulatory & Development Authority (PFRDA), told BusinessLine here.
Once the taper norm gets removed — decision expected to be notified and implemented soon — the non-government NPS subscribers who had opted for 75 per cent equity in Tier I will not be required to pare their equity component on the stipulated age.
In June 2018, the PFRDA had enhanced the limit limit for NPS under its Active Choice to invest in Asset Class E (equity) to a maximum of 75 per cent from its earlier limit of 50 per cent.
Three riders
This was allowed with three riders. The first was that it applied only to the non-government subscribers of NPS. The second, when the subscriber reaches the age of 50, the equity portion will taper off according to a fixed schedule set by PFRDA. The equity allocation reduces 2.5 per cent each year till it reaches 50 per cent by the age of 60 years.
Third, when someone joins NPS beyond 50, the maximum cap will start according to a specified table. To put it simply, for someone joining at the age of 54, the maximum cap will start from 65 per cent and will taper off as one ages.
Asked as to what has prompted PFRDA to remove the equity taper norm, Bandopadhyay said, “people who went in for 75 per cent equity allocation did not like this. They did not realise that it would automatically taper. So they had requested us to review it. We went to our advisory committee which agreed to its removal”.
Bandopadhyay said that the minutes of the Board decisions are awaited and would get notified soon. “We have already sounded out the Central Record Keeping Agencies to be ready with changes to their systems on this front,” he said.
Tier II equity cap hike
In the case of Tier II accounts, basically an investment option given to a person to be attached to his pension account, the maximum equity cap has been hiked from 75 per cent to 100 per cent.
“We were getting feedback from corporate subscribers that those who understand equities should be allowed to go upto 100 per cent. We felt that if they want to take that kind of risk let them take, let them do it”, Bandopadhyay said.
The PFRDA Chairman also said that the Board has stipulated that both for keeping Tier I equity cap at 75 per cent without taper and Tier 2 accounts to have 100 per cent equity , there will have to be a riskometer in place. “The board suggested you put a riskometer. It will be designed by Crisil and be on the lines of the Riskometer in use in mutual fund industry”, he said.
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