With pension fund managers, PFRDA mulling the option of holding 40% annuity at retirement

PFRDA, the pension fund regulator, is considering offering subscribers the option of parking 40% of their corpus, which is used to buy an annuity at retirement, with a pension fund manager to provide more benefits. Subscribers with a corpus of more than Rs 2 lakh at the time of retirement or who reach the age of 60 must purchase an annuity provided by insurance providers on a compulsory basis. They also have the option of withdrawing the remaining 60% as a lump sum. To put it more simply, if a subscriber has a corpus of Rs 2 lakh or less at the time of retirement, it is not necessary for that individual to buy an annuity because the amount given as a monthly pension is very less. PFRDA Chairman Supratim Bandyopadhyay explained during a virtual conference that in the National Pension System (NPS), as long as money is accumulated in the corpus, after retirement at the age of 60, one must pay 40% of the corpus to buy an annuity and the remaining 60% can be withdrawn as a lump sum.

However, since annuity premiums are still related to interest rate markets, annuity rates have fallen precipitously, to the point that, at the age of 60, returns are in the range of 5% to 6%. Bandyopadhyay said that, "Most of the players (annuity providers) are giving about 5-5.5 per cent as returns. And the annuity is taxable also...so if you see the kind of inflation you see in the market, it is a negative return." He further added that, "So a lot of people were complaining about that, so we thought why not give them one more choice of retaining that 40 per cent also within our pension fund managers and giving them a kind of a return which...So we are in talks with our pension fund managers."

He stated that the discussions are with all stakeholders, including the government and regulators such as IRDAI and SEBI, since annuity products are offered by companies that are regulated by them. In addition, the Pension Fund Regulatory and Development Authority (PFRDA) is seeking to increase the maximum corpus that one withdraw at the time of retirement or exit from a scheme from Rs 2 lakh to Rs 5 lakh, without having to buy an annuity. The reasoning behind this is that a corpus of over Rs 5 lakh along with the mandatory purchase of annuity can provide a minimum monthly pension of Rs 1,000. There are currently 12 insurance firms who have been approved by the PFRDA to offer annuity plans, as well as eight pension fund administrators who invest the funds of subscribers in different schemes selected by them. National Pension System (NPS) and Atal Pension Yojana (APY) are two of PFRDA's flagship pension schemes. As of March 31, 2021, it had increased its total subscriber base by 23% to over 4.24 crore (424.40 lakh). Whereas the AUM (Asset Under Management) jumped by 38% to Rs 5,78,025 crore.