Home/ Money / Personal Finance/  ‘PFRDA plans to lift 75% equity cap on NPS Tier II’

The 75% limit on equity under NPS (National Pension System) Tier II will be raised to 100% once the board approval comes through, reveals Supratim Bandyopadhyay, chairman, Pension Fund Regulatory and Development Authority (PFRDA), in an interview to Mint. Those opting for 75% equity in Tier I (active choice) too, will no longer have to pare their equity component once they cross 50 years of age. Edited excerpts. 


What progress has the NPS made over the past year? 

In the beginning of the year, we were talking about certain numbers (1 million fresh subscriber additions) and we are close to that, though it all depends on the March performance. NPS has at least around 8.3 lakh fresh subscribers this year. Last year was the highest at about 5.9 lakhs. So, in a particular year when we have seen two waves of covid-19, I believe, the points of presence (PoPs) have done a wonderful job of reaching out to people. They have created their own mobile apps and online channels which are doing quite well because during this period many people would have liked to avoid visiting a bank branch or a PoP office. 

Late last year, PFRDA released regulations for individuals to enrol themselves as agents of PoPs. Has there been much progress in this area? 

Individual agents will not be empanelled by us directly. They will be empanelled by the PoPs under a simple format where they will have an agreement with them on how the revenue will be shared. Insurance agents and mutual fund distributors are the individuals who will be empanelled as they are already selling financial products. Keeping these individuals in mind, we have increased our PoP charges. To attract them, a little more must be given because these charges are nothing compared to insurance commissions or mutual fund distribution fee. 

Does PFRDA have plans for a regulatory sandbox? There have been instances of startups coming up in the pension sector of late. 

We have been putting in some guidelines but we have also been talking to some of our PoPs to bring some novel ideas to be worked on in that sandbox environment. But till now, we have not received anything worthwhile. 

What about new pension fund managers? For example, you received an application from Axis AMC. 

We approved Axis’s application long back, but Axis Bank has floated Axis AMC (Asset Management Company) and Axis AMC is going to be the major promoter here. So, they had to take their primary regulator, that is, Axis Bank’s primary regulator, RBI’s approval. So, this took some time. Now, all approvals are in place. So, they expect to form the pension fund management company by April. As far as the other two, those promoted by Tata AMC and by Max Life Insurance are concerned, the approval was given a little later. I believe they are working on a war footing and so we can see their pension fund managers in another two to three months. 

Are there any plans to remove the 75% equity cap, particularly in NPS Tier II? 

Our Pension Advisory Committee has agreed to this but like the mutual fund industry, they wanted us to develop some kind of risk-o-meter which shows the extent of risk you are taking with a particular product. So, the risk-o-meter has been developed with help of the NPS Trust and CRISIL and we are taking it to the board. So, once they approve it, then the 75% limit will be increased to 100% in Tier II because that is an optional account. In Tier I also, we are going to bring a small change. We have 75% active choice option in equity but there is a small condition. Once you cross 50 years of age, your equity component has to come down. For such subscribers too, we are removing the limit. 

PFRDA has empanelled a consulting firm for the minimum guaranteed pension / minimum assured return scheme. Any progress on this? 

We have just empanelled them and I had one round of discussion with them to talk about what kind of guarantees can be given. We have to keep two things in mind. One, the guarantee that is given should attract people. Secondly, this should be something that pension fund managers can also manage. I cannot give an absolute guarantee and say that whatever happens, I’ll give you a 10% return. That is impossible under the kind of volatility that we see in the market. The consulting firm will design the product. 

A fluctuating guarantee, one which is benchmarked to say, a T-bill or one-year government security may be a better way of doing it. This will be reset periodically and will not be fixed for the entire term. So, the consulting firm will come out with the product and thereafter, our committee comprising of internal members and external actuaries along with the Pension Advisory Committee will provide guidance on what is acceptable.

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Updated: 15 Mar 2022, 01:51 AM IST
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