PFRDA Amendment Bill: Key changes expected in NPS

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As the monsoon session of the Parliament is going on, the much-awaited Pension Fund Regulatory and Development Authority (PFRDA) Amendment Bill may see some progress. The amendments, if approved, will give more flexibility to the pension regulator to improvise the pension framework of National Pension System (NPS). Among key amendments, the one pertaining to separating the NPS Trust from PFRDA holds importance. It will ensure there is no conflict of interest between the NPS Trust and the regulator PFRDA. The Trust administers the funds collected under NPS schemes.

Among others, the PFRDA has suggested allowing subscribers to commute the full amount of corpus at the retirement. Currently, NPS subscribers can commute 60% of their retirement corpus tax free, while 40% has to be parked with one of the insurance companies to receive pension. However, those who manage to accumulate only up to Rs 5 lakh by the retirement age are allowed to withdraw the full amount.

What is in it for subscribers?

Innovative pay-out options such as variable annuities and systemic withdrawal plans (SWPs) are also under discussion. Variable annuities could be inflation-indexed benchmarked to 10-year government securities. Alternatively, the subscribers may get to retain 40% of the retirement corpus with the pension fund managers to earn better return and receive pension via SWP.

“The moment you think about such a scheme, you have to take Irdai and Sebi on the same page too so that they are clear that we are not trailing into their area,” the pension regulator had said in an earlier press conference.

NPS is a voluntary social security benefit that allows subscribers to invest in schemes managed by pension fund houses such as HDFC Pension Management and ICICI Prudential Pension Fund Management. These schemes give an exposure across equities, debt and government securities as preferred by the subscriber. The investment in NPS attracts tax deduction under section 80-C of the Income-Tax tax. An additional Rs 50,000 deduction can be availed under section 80CCD(1B).

NPS currently manages the AUM of above Rs 6 lakh crore.