NPS: Get assured returns soon

Retirement planning is an essential investment criteria for any individual. One of the safest and most-preferred avenues for retirement planning is the National Pension System (NPS) that invests one’s fund in equities and debt in a band according to the choice of the investor. NPS scores higher on the rate of return compared to other investment options such as PPF, EPF, FD and NSC.

The pension fund regulatory and development authority (PFRDA)has decided to provide a scheme with assured returns to subscribers as an option under the NPS. Currently, NPS subscribers do not get any guaranteed return.

Generally, one can get at least 9% return for conservative investment in NPS. For someone willing to take risks, a return of 13% is also possible.

The regulator has invited bids from consultants to formulate a minimum assured return scheme that can be offered to the existing and prospective subscribers by pension funds.

A citizen of India aged between 18-70 years can join NPS either in their individual capacity or in association with their employer.

What is PFRDA exploring?

PFRDA is now looking for a scheme with minimum assured return. Right now, if you invest Rs 5,000 every month for 20 years, you would get Rs 1.1 crore at the age of 60 years, of which Rs 68 lakh would be paid in a single payout, while the rest Rs 42 lakh would be paid as monthly pension of Rs 22,800 at 6% annuity rate.

PFRDA officials are saying if the new scheme is approved, one can be paid a monthly pension of Rs 17,000-Rs 19,000 assured monthly pension along with a single pay out of a minimum of Rs 50 lakh irrespective of the market condition and volatility.

Parameters of assured return

All contributions will be eligible for the guarantee subject to certain limits. Guarantee may be applicable only to future contributions, no existing amount will be considered.

Guarantee may be based on nominal return with preferences for interest rate. Combinations of fixed or floating rates might be worked out together and some lock-in period might be applicable on each contribution. Minimum and maximum monetary limits on contributions could be prescribed.

“Partial or immature withdrawals may be directly linked to the lock-in period. The subscriber may have the option to withdraw or to stay invested after the lock-in period just like PPF. However, there won’t be any guarantee applied on the investment after lock-in period,” officials told the media.

NPS customer base

According to PFRDA chairman Supratim Bandyopadhyay, the subscriber base under the non-government sector, which is the corporate and all citizen model, has more than doubled to over three million as on August 14, 2021 from about 1.3 million in March 2018.

The corpus under these two segments has already reached Rs 970 billion and will soon cross the Rs 1 trillion mark. The corporate subscriber base stands at 1.2 million as of August 14, 2021. The number was 6,96,000 in March 2018.

 The subscribers under the all-citizen model or retail segment reached 1.8 million. It was 6,92,000 three years ago.

NPS subscriber base data has five categories – central government, state government, corporate, all citizen model and NPS Lite. The all-citizen model refers to retail customers.

Bottom line

The basic pattern of NPS won’t change. Through NPS, people are investing money in equity market, government bonds and corporate bonds. This model would remain same, but currently this instrument is purely linked with market and the returns are not fixed or assured.

When the new scheme comes to market, it would make people eligible for assured pension along with a payout.

“The new system will get a lot of participants. Many look for safe investment options for the retired life. If any assured pension amount along with a single pay out is offered, there would be many takers. Since the equity market gives higher returns, it would ultimately benefit the customers,” said Narayan Jain, a tax professional.