PFRDA chairman says regulator may soon offer an assured return scheme

Pension Fund Regulatory and Development Authority (PFRDA) Chairman Deepak Mohanty on June 7 said the regulator was working on a pension scheme that could provide a minimum assured return. He also said Atal Pension Yojana (APY) enrolments have shown a continuously increasing trend since the scheme’s inception, with 53.3 million subscribers enrolled at present. 

Responding to a query during a press conference held on Wednesday, he said, “We are considering an assured return product. We will come out with that product soon. However, one would have to see that the returns are attractive.”

“That is very much in the works…there we have to balance risk and return…somebody gives assurance, and it will come with a cost as more risk is involved,” he added.

He said that when it is a case of assured return, the pension fund has to provide more capital. The regulator further explained that the minimum assured return scheme would come up with a higher premium to offer attractive rates.

While APY has generated 9 per cent return, the National Pension System (NPS) have given more than 12 per cent returns (in equity) since its inception. The central government launched this pension scheme to provide retirement security to Indian citizens. The scheme helps subscribers build a long-term investment corpus for their retirement through regulated market-based returns.

Mohanty noted that in the case of APY, the government had assured gap funding for the scheme.

APY enrolments had increased 25 per cent between financial year 2020-21 (FY21) and FY22. Similarly, a growth of 20 per cent was seen from FY22 to FY23. For FY24, the enrolment target is 13 million as against 12 million last year. He said, “To make the target more realistic and achievable, we have it low this time.”

He said that the PFRDA is committed to contributing towards pension saturation in the country and is continuously undertaking proactive initiatives to achieve it.

Currently, the available investment options under NPS and APY are
As an NPS subscriber, you can choose the Pension Fund Manager (PFM) as well as scheme preference while registering in the CRA system under NPS. Normally, there are multiple PFMs in NPS, Investment options (Auto or Active) and four Asset Classes i.e. Equity, Corporate debt, Government Bonds and Alternative Investment Funds. The Subscriber first selects the PFM, and after that, he has the option to select any one of the investment options.

Active Choice: Individual Funds
In this type of investment choice, you can actively decide how to invest your contribution based on personal preference. The subscriber has to provide the PFM, asset class, and percentage allocation to be done in each scheme of the PFM.

There are four Asset Classes (Equity, Corporate debt, Government Bonds and Alternative Investments Funds) from which the allocation will be specified under a single PFM. For instance, you have asset class E (Equity and related instruments),  Asset class C (Corporate debt and related instruments), asset class G (Government Bonds and related instruments), (Asset Class A - Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts etc.)

Auto Choice: Lifecycle Fund
Suppose you don't have the required knowledge to manage your NPS investments. In that case, you have the option to make investments in a life-cycle fund. Here, the proportion of funds invested across three asset classes is determined by a pre-defined portfolio (which would change as per your age).

So if you want to automatically reduce exposure to more risky investment options as you get older, Auto Choice is the best option. As age increases, the individual’s exposure to Equity and Corporate Debt tends to decrease. Depending upon your risk appetite, three different options are available within ‘Auto Choice’ – Aggressive, Moderate and Conservative.

LC75 - Aggressive Life Cycle Fund: This Life cycle fund provides a cap of 75% of the total assets for Equity investment. LC50 - Moderate Life Cycle Fund: This Life cycle fund provides a cap of 50% of the total assets for Equity investment. LC25 - Conservative Life Cycle Fund: This Life cycle fund provides a cap of 25% of the total assets for Equity investment.

APY: This is a pension scheme launched by the Government of India for unorganized sector workers. The workers can get a minimum guaranteed pension of Rs 1,000 or 2,000 or 3,000 or 4,000, or 5,000 per month at retirement. Depending on their contributions to choosing a pension, they can get a monthly income in their bank account at 60.

The contributions under APY are invested as per the investment guidelines prescribed by PFRDA for Central, State Government and APY