PFRDA To Appoint Consultant To Design Minimum Assured Return Scheme Under NPS

The Pension Fund Regulatory and Development Authority (PFRDA) has published a request for proposal for the hiring of a consultant to assist in the implementation of a Minimum Assured Return Scheme (MARS) under the National Pension System (NPS). PFRDA has said that it intends to invite proposals/bids from Consultants to (i) formulate/design in consultations with stakeholders a minimum assured return scheme (MARS) that can be offered to the existing and prospective subscribers by Pension Funds (a) with the basic design or (b) with limited modifications upon approval by the Authority (ii) setup a procedure to evaluate and approve basic scheme design modifications by Pension Funds and supervise MARS (iii) prescribe fees, solvency requirements, risk management and reporting mechanism for Pension Funds in respect of MARS.

Entities interested to undertake the above assignment are invited to submit their proposals/bids in the form of (i) Technical Proposal and (ii) Commercial Proposal. According to PFRDA, proposals received in response to this RFP will be evaluated in terms of the conditions laid out herein and the Applicant/Consultant which is thus selected will be required to provide professional, objective, and impartial service at all times, hold the PFRDA interests paramount, without any consideration for future work, and strictly avoid conflicts with other assignments or their own corporate interests.

Scope of work

PFRDA Act mandates that the subscribers under NPS should have a choice of a scheme that provides minimum assured returns to them and such scheme would be offered by the Pension Funds registered with the Authority. The scope of work for the Consultant would be to:-

3.1 Formulate/Design the minimum assured return scheme (MARS) with the following parameters that can be offered to the existing and prospective subscribers by Pension Funds with (a) the basic design or (b) limited modifications in the basic design by Pension Funds with approval of the Authority:-
(i) Guarantee would be Capital plus additional benefits or Interest Rate Guarantee.
(ii) Guarantee would be applicable on each contribution individually. The funds received through switch from other schemes to be considered as fresh contributions.
(iii) Guarantee may be applicable only to the future contributions (prospectively).
(iv) All contributions will be eligible for the guarantee subject to certain monetary limits (with periodicity) as may be prescribed.
(v) Guarantee would be based on Nominal return with preferences for Interest Rate guarantee
(vi) Combinations of fixed or floating rates may be worked out for MARS and both the options under this parameter may be kept open for evaluations
(vii) Lock-in would be applicable on each contribution and applied based on period since that contribution. For providing flexibility, multiple lock-in period options (or have staggered guarantee periods) may be considered and for each lock-in period the guarantee offered would be different. However, such options/staggering shall not be more than 2-3.
(viii) Withdrawals would be directly linked to lock-in period. The subscriber may have option to withdraw or to stay invested after the lock-in period, however, there won't be any guarantee applied on the investment after lock-in. For availing further guarantee after expiry of lock-in period, subscriber to again opt for fresh lock-in.
(ix) Minimum and maximum monetary limits on contributions that can be made by subscribers to be prescribed. The contributions may be made flexible within the prescribed limits
(x) Considering marked-to-market valuation of scheme assets under MARS, it may be prudent to allow the PF to charge their fees as a percentage of corpus managed by them.

3.2 Based on MARS design prescribed, provide recommendations for:-
(i) Fees/pricing of guarantee by Pension Funds to be charged to subscribers (viz. range with minimum and maximum limit, upper ceiling, floor & cap etc.)
(ii) Capital and Solvency requirements of Pension Funds for providing guarantee.
(iii) Guidelines for investment (permissible investment/hedging instruments), valuation, prudential norms and scheme accounting.
(iv) Risk management by Pension Funds in respect of MARS.

3.3 Provide the following to the Authority for its own usage:-
(i) Model/procedure to evaluate and approve MARS offerings by Pension Funds with basic design or with modifications that would be filed with the Authority for seeking approval before being offered to subscribers/public at large.
(ii) Mechanism to be adopted by the Authority for supervising solvency, capital requirements, asset-liability management and risk management of Pension Funds in respect of MARS.
(iii) Formats of Reporting/MIS/Actuarial Reports to be submitted by Pension Funds to the Authority for monitoring and supervision of MARS in the best interest of subscribers.
(iv) Disclosures by Pension Funds in respect of MARS to the subscribers and public in general.

3.4 Any other issue that may be relevant in the above context.

3.5 The Consultant would be required to undertake discussions with stakeholders or may be required to interact with an expert/group/committee constituted by the Authority while designing or finalizing the MARS design structure.

Non- Refundable Application Fee

The bidder shall be required to deposit a non-refundable application fee of Rs. 20,000/- (Rupees Twenty Thousand only) in the form of Demand Draft/Pay Order from any scheduled commercial bank favoring Pension Fund Regulatory and Development Authority and payable at New Delhi or attach proof for remittance of application fees through electronic transfers directly to PFRDA Bank account along with the bid/proposal in a separate sealed envelope. Bid/Proposal not accompanied with requisite non-refundable application fee shall not be entertained and summarily rejected.

Earnest Money Deposit (EMD) - Bid Security Amount

a) Bidder will have to provide an EMD/Bid security of Rs 50,000/- (Rupees Fifty thousand only) by way of either a demand draft/pay order issued in favour of Pension Fund Regulatory and Development Authority, payable at New Delhi or by making electronic payment through NEFT/RTGS to PFRDA Bank account.
b) In the event of non-submission of the EMD/bid-security money of Rs 50,000/-, the bid/proposal will be summarily rejected.
c) No interest will be payable on the EMD/Bid Security amount.
d) The EMD/bid security amount will be forfeited if upon being declared successful the Bidder refuses to accept work order or having accepted the work order, fails to carry out its obligations mentioned therein.
e) The EMD/Bid Security amount will be refunded to the unsuccessful bidders only after completion of the entire RFP process.
f) The EMD/Bid security amount of the successful bidder would be refunded upon submission of Performance Bank Guarantee (PBG).

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Source: PFRDA