Mumbai:
The government is currently working out on amendments to the existing PFRDA Act,which amog host of changes, will make the Pension Fund Regulatory and Development Authority (PFRDA), the sole regulator of pension products in the country.
Currently, pension funds, that are sold by the insurers and mutual funds, are being regulated by the insurance regulator IRDAI and capital market regulator Sebi.
Among other changes, the amendments also provide for making National Pension System Trust to operate under the government and will be in charge of marketing of the pension industry, that is being regulated by the PFRDA and allowing systematic withdrawal plans (SWPs) for NPS along with annuities.
“The proposed amendments will segregate the marketing functions from the PFRDA which will be only be a licensing authority. The Ministry of Finance*MoF) has finalised a few amendments to the existing PFRDA Act and after inter-ministerial consultations, it will go to the Cabinet for its final approval.It may be placed in the parliament during the forthcoming Budget session,'' said Supratim Bandyopadhyay, Member (Finance). PFRDA.
.
Currently, under the NPS at least 40 per cent of the accumulated pension amount of the subscriber needs to be utilised to purchase an annuity providing that would provide for a monthly pension to the subscriber and the balance 60 per cent is paid as a lump-sum to the subscriber. But with tax and lower returns in annuities, it is better to opt for SWP.
Currently, some mutual fund houses in the country provide SWP to investors, wherein they are provided with a specific amount of payout at pre-determined time intervals such as monthly, quarterly, half-yearly or annually
“Returns of annuities differ from one company to another, but as of now the annuities give returns of around 6.25 per cent On the other hand NPS returns are anywhere between 9.5-10 per cent.Also, there is an indication that interest rates will move down in the system and if interest rates moves down than annuities rates also go down,” explained Bandyopadhyay. He also added that the factors like taxation structure and how long subscriber can continue to get SWP have to be examined as it will be completely a new product.
The PFRDA has also suggested to the government to increase the tax exemption amount on the exclusive pension investment, currently available for Rs 50,000, to Rs 1 lakh under Section 80CCD (1B)in NPS, he said.
In addition, the body has proposed extending tax exemption under 80C to tier-II voluntary NPS accounts.Right now, the exemption can only be availed by central government employees.The PFRDA has been advocating exemption to other employees including those working in the private sectoras as well.
The PFRDA has also suggested that only interest earned in the annuities should be taxed and not the entire annuity amount.Currently, 60 per cent of the total money received at maturity from NPS is tax-free, but annuities bought with the rest of the 40 per cent mpney are taxed in the hand of investors either as income from salary or income from other sources .
Bandyopadhyay further said the whole issue of foreign direct investment (FDI), which is capped at 49 per cent for the pension fund players, are getting resolved and soon PFRDA will issue ask for applications to allow more pension fund players in the country
There are 90 approved Point of Presence Service (PoPs) including 45 banks through whom customers can subscribe pension products as regulated by the PFRDA and sold through seven pension fund players in the country.A PoP can charge an amount between Rs 20 to Rs 25,000 for faciilitating subscription of pension products from the pension fund players.
.
As on 14 December, 2019, with a subscriber base of 3.22 crore, the total assets under management (AUM) of NPS was Rs 3.92 lakh crore. The PFRDA, has envisioned to expand the subscribers base by targeting 3.5 crore people by March 2020.
Bandyopadhyay, said, “ NPS has posted a 35 per cent growth in subscriber base so far during 2019-20. We are overwhelmed to see such growth in the number of subscribers under NPS. However, there is a long way to go as currently there are around 96 oer cent people who are not under any other social security scheme, however, with the government support the target of providing pension coverage to such people can be achieved.”
Over the last ten years, the equity NPS products have delivered annualised returns of 11 per cent. The corporate bond schemes have delivered 10.3 per cent returns, while government securities schemes have yielded 9.5 per cent returns.A conservative investor exposed to a diversified mix of the above products, would have seen a blended return of ten per cent over the last ten years.
The PFRDA is also planning to develop an industry body on the lines of the Association of Mutual Funds in India (Amfi).Currently India has pension assets of over Rs 25 lakh crore including assets managed by EPFO and other privately managed pension plans.PFRDA currently manages Rs 4 lakh crore of assets.
According to Melbourne Mercer Global Pension Index (MMGPI) 2019, released recently, India rose to 45.8 from 44.6 last year in global pension index, stating the rise of retirement planning awareness in India. India's index value increased largely due to the improvement in all three sub-indices of adequacy, sustainability and integrity,.