India's pensions fund regulator will ensure that the entities offering minimum assured return schemes (MARS) are adequately capitalised and that there are enough firewalls to ensure there is no "contamination" with other pension schemes.
Unfunded schemes such as the old pension scheme are not sustainable, something that is being witnessed the world over, Pension Fund Regulatory and Development Authority (PFRDA) chairman Deepak Mohanty told ET in an interview.
Mohanty is a member of the committee looking into pension systems for government employees, set up after the clamour from multiple states to switch to the old pension scheme.
He said there could be a case for improvements in the National Pension System (NPS) scheme.
Mohanty, previously executive director at the Reserve Bank, took over as PFRDA chairman in March.
There have been suggestions that pension schemes offer some assured minimum return options to subscribers.
Mohanty said the design of a product offering minimum assured returns is in the works. "This would be an additional option … Some work needs to be done," he said, adding that it needs to be seen that the return assured is attractive enough.
"If we come out with the product, we would also have to specify solvency separately for the managers … We would also require separate norms to ensure there is no contamination," he said.
Pension funds are thinly capitalised and they will need to bring in solvency capital if they offer guaranteed returns, the PFRDA chairman pointed out.
The regulator will also roll out systematic withdrawal from the end of September, allowing subscribers to pull out funds at permitted intervals from their NPS account.
"We have already decided on it … the Central Recordkeeping Agency is doing their system development. I would expect next quarter we should be able to roll it out," he said.
The regulator is working with pension funds to create an umbrella body, like the Indian Banks Association, to represent the sector and undertake developmental activities.
At the end of May, the NPS had a corpus of ₹2.07 lakh crore, up 29.1% from a year earlier. The number of subscribers, excluding NPS Lite, was 13.3 million, up 13.2% from a year earlier.
About 13,000 companies had been onboarded and the regulator is now planning an outreach to popularise NPS and also target professionals. The PFRDA is also trying to expand the intermediary space including the points of presence.
"We are planning to expand the universe … We would be launching campaigns," he said, adding that one of the focuses would be to encourage people to take the product for their spouse or children.
Mohanty said the onboarding process had been smoothened with a digital interface reducing account opening to 10-15 minutes.
Old Pension Scheme vs New
Mohanty, who is a member of the finance secretary-led panel looking into the pension scheme for government employees, said there could be a case for improvement to the NPS. "Certainly, there could be that it gets more acceptance," he said but declined to give any details about the deliberations of the committee.
He said the old pension scheme was an unfunded scheme whereas NPS is a defined contribution scheme. In many countries, it is also funded through payroll taxes and wherever funding has run short, pressures are visible, he said, adding: "Unfunded schemes are completely not sustainable."
States that have decided to move back to the defined benefit old pension scheme include Rajasthan, Jharkhand, Chhattisgarh, Himachal Pradesh and Punjab.
The old pension scheme offered an assured pension linked to the last-drawn salary without any contribution from the employees, which made it fiscally unsustainable for the government.
In contrast, the new pension plan requires the employee and the employer, including the government, to make contributions during their working life. The subscriber can use the accumulated funds to buy an annuity or any other way to get a regular retirement income.
The Open Magazine of India by Artmotion Network (https://magazine.armotion.com/)