The National Pension System (NPS) is a pension and investment scheme developed by the Government of India to provide citizens of India with long-term financial security. It offers a compelling long-term saving option for appropriately planning your retirement through market-linked returns. Under the guidance of the Pension Fund Regulatory and Development Authority of India (PFRDA), acceptance of the retirement plan National Pension System is rising day-by-day. The pension regulator will soon introduce significant reforms to make it more appealing and to broaden its scope across India. Here's what's coming up in the near future:
1. Entry and exit age limit to be modified
Individuals between the age group of 18 and 65 can currently enter the NPS. The regulator is planning to hike the limit to 70 years. The proposed exit age of 70 years may be increased to 75 years. PFRDA Chairman Supratim Bandyopadhyay commented on the matter that "When we hiked the entry age to 65 from the 60 years, more than 15,000 60-plus people subscribed to the NPS. With the longevity increasing, it makes sense to hike the maximum entry and exit age to 70 years and 75 years, respectively. These are just enabling conditions - not mandatory."
2. Exit option to be hiked
NPS contributors can withdraw 60% of their contribution after retirement, while the remaining 40% must be maintained to purchase annuity. Those who accumulate only up to Rs 2 lakh by the time they reach retirement age, on the other hand, are entitled to withdraw the entire amount. The PFRDA is planning to hike the limit to Rs 5 lakh. 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 purchase an annuity since the amount provided as a monthly pension is very low. Currently, under the National Pension System (NPS), once money has accumulated in the fund, one must contribute 40% of the corpus to purchase an annuity and the remaining 60% will be paid out as a lump sum until retirement at the age of 60. During a virtual meeting, PFRDA Chairman Supratim Bandyopadhyay said that "This is also an enabling condition. If a subscriber does not want to commute the full amount, they may go ahead with the annuity option."
3. PFRDA planning to issue minimum assured return
To lure more subscribers, the Pension Fund Regulatory and Development Authority (PFRDA) is working on strategies to launch new retirement benefit options, such as one that has a minimum assured return. PFRDA Chairman Supratim Bandyopadhyay said at a virtual conference that "Apart from NPS and Atal Pension Yojana (APY), we propose to have some innovative products to attract more and more customers. The first product that we are targeting is a product which will have a minimum assured return." "The moment they (pension fund managers) start giving guarantee on products, it will have a lot of bearing on their capital requirements and capital adequacy structure," he said. He further added that "The pension advisory committee has already given an approval to the guaranteed product. Now the actuarial firm will design it. We expect to launch it in the next one or two months."
4. Payout options to be flexible
Subscribers must deposit 40% of their NPS deposits with one of the 12 insurance companies that the NPS has partnered with. Bandyopadhyay states that annuity rates have dropped sharply, to the point where the interest rate on a return of purchase price option in annuities ranges between 5% and 6%. Since annuities are taxable, when you factor in taxes and inflation, you end up with a poor return. This is why we want to offer innovative payout options, said Bandyopadhyay. "We are also looking at a mixture of annuity and systematic withdrawal plans. We are getting actuarial firms to look into the viability of it." he added. To receive a decent return, the regulator is considering allowing subscribers to keep 40% of their capital with the pension fund managers. At the virtual conference he also stated that "The moment you think about such a scheme, you have to take IRDA and SEBI on the same page too so that they are clear that we are not trailing into their area."
5. Distribution channel to be expanded
A distribution licence is now only available to institutions. They're known as Point of Presence (POP). Considering the same, Bandyopadhyay said that "We are expanding the distribution channel. We are exploring if we can have individuals as our distribution partners. However, we do not have wherewithal to hire individual PoPs. Existing POP can recruit them as their sub-entities. Besides, we will soon be rationalising the commission fee for POPs as we did for pension fund managers on fund management fee."