Money & Banking

Falling annuity rates: Pension regulator knocks on Govt doors seeking better deal for NPS subscribers

K.R. Srivats New Delhi | Updated on October 18, 2019 Published on October 18, 2019

Wants 40 per cent of accumulated corpus to be parked in alternative systematic return products

To enable NPS subscribers get better returns, pension regulator PFRDA has knocked on the Government’s doors seeking certain legislative changes in the norms on mandatory annuities that need to be purchased on the 40 per cent of the accumulated corpus at the time of withdrawal.

Instead of the mandatory annuities, the Government could allow such funds (40 per cent of accumulated corpus at the time of retirement/ withdrawal) to be parked in alternative systematic return products that could fetch higher returns than current annuities, the PFRDA has suggested.

Alternatively, the PFRDA is contemplating allowing pension fund managers (PFMs) to offer annuity products on the 40 per cent accumulated corpus under the National Pension System (NPS), a top PFRDA official said.

“We are now getting feedback from NPS subscribers that they are not happy with the annuity rates. Also, the annuity rates are coming down drastically and something needs to be done on this front. So we have approached the Government seeking legislative changes,” Supratim Bandyopadhyay, Whole-Time Member Finance, Pension Fund Regulatory and Development Authority (PFRDA), told BusinessLine.

Currently, annuity products can be offered only by annuity service providers controlled by IRDAI. PFRDA wants legislative changes to the PFRDA Act to enable NPS subscribers get a better return on the 40 per cent portion of the accumulated corpus which mandatorily has to now be invested in annuities.

“We are quite hopeful that amendments will come in the PFRDA Act during the upcoming Winter session and the changes will be a reality by December,” Bandyopadhyay said.

He said NPS subscribers are not able to reconcile to the situation where annuities yield 6 per cent and the rates during the accumulation phase hovered around 9.5 per cent. “Our PFMs are ready to manage that 40 per cent also and give a better return than what annuity service providers offer. So why not give our PFMs that chance?. We only need to effect a regulation change to allow this. There is no need for law change”, he said.

As on date, total NPS corpus stood at ₹3.8 lakh crore.

No slowdown effect

Bandyopadhyay said ‘NPS private sector’ is seeing a buoyant growth in terms of the number of subscribers and it has almost doubled till September to 2 lakhs on a year-on-year basis. He pointed out that NPS for ‘private sector’ is optional unlike the Government sector which is mandatory.

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Published on October 18, 2019
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