Pension fund regulator PFRDA is considering giving better options to the shareholders of the National Pension System (NPS). At present, the shareholders get relatively low annual returns under this scheme. Experts said the proposed move would give investors more flexibility in using their pension funds at the time of withdrawal. But they will have to be denied long-term returns if they are completely out of annuity.
PFRDA Chairman Supratim Bandyopadhyay said that at present, every shareholder whose total invested amount remains more than two years of rupees till retirement or 60 years of age, will have to keep 40% deposit in annuity fund, thereby adjusting tax and inflation. Their returns become negative when done. Transferring funds in an annuity scheme is not taxable but there is a tax liability at the time of withdrawal which depends on the income tax net of the investor.
He said, ‘We are considering a payment plan. After 60 years or retirement, it is mandatory to put 40% of the amount in the annuity plan. Annuity is paid by IRDAI controlled insurers. The annuity is in accordance with the interest rate in which there has been a steep decline in recent times.
Bandyopadhyay said that returns on annuity plans range from 5 to 6 per cent but most insurers pay 5 to 5.5 per cent.
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He said, ‘If you look at the rate of tax and inflation, the actual return becomes negative. We are considering giving our shareholders the option of retaining 40 per cent with their pension fund managers. We have a phased withdrawal plan as well as a mixed option of annuity and phased withdrawals. We are also studying the model being adopted in other countries.
Dipesh Raghav, founder of PersonalFinance Plan, said that the scope for making more changes in the annuity is much less. He said, ‘With SWP, investors get more freedom. However, regulators may add some conditions with the SWP, so the situation will be clear only after detailed disclosures are made.
Although he said that there is one thing that annuity options can guarantee income for a lifetime, but such is not the case with SWP. At this time you can withdraw money up to Rs 2 lakh and there is no need to keep 40 percent amount in annuity.
Bandyopadhyay said that PFRDA wants to increase this limit of Rs 2 lakh to Rs 5 lakh. He made it clear that there will always be an option of annuity.
PFRDA will also make a provision under which any pension fund manager can apply for license at any time. PFRDA is also preparing to introduce a scheme offering minimum fixed returns. The Minimum Guarantee Scheme is part of the PFRDA but has not been implemented so far.
