PFRDA mulls option to park 40% annuity at retirement with pension fund managers

New Delhi, Apr 16: Pension fund regulator PFRDA is mulling giving to its subscribers an option of parking 40 per cent of the corpus that is mandatory to purchase an annuity at the time of retirement with a pension fund manager to get better benefits.

As of now, subscribers having a corpus of over Rs 2 lakh at the time of retirement or attaining the age of 60 years need to buy an annuity, offered by insurance companies, on a mandatory basis. They can take out the remaining 60 per cent as a lump sum.

In other words, if a subscriber has a corpus of Rs 2 lakh or less at the time of retirement, it is not mandatory for that person to purchase an annuity as the amount comes out to be very less to be offered as a monthly pension.

Currently in the National Pension System (NPS), so long the money is getting accumulated in the corpus, post retirement at the age of 60 years, one has to pay 40 per cent of the corpus to buy an annuity and the balance 60 per cent can be taken out as a lump sum, PFRDA Chairman Supratim Bandyopadhyay said during a virtual conference.

But the annuity rates always track the interest rate markets, so annuity rates have also come down drastically so much so that at the age of 60 years, the returns are in the range of 5-6 per cent.

"Most of the players (annuity providers) are giving about 5-5.5 per cent as returns. And the annuity is taxable also...so if you see the kind of inflation you see in the market, it is a negative return.

"So a lot of people were complaining about that, so we thought why not give them one more choice of retaining that 40 per cent also within our pension fund managers and giving them a kind of a return which ... So we are in talks with our pension fund managers," Bandyopadhyay said.

He said the discussions are with the stakeholders including the government and regulators such as Irdai and Sebi because companies under their regulation also offer annuity products.

Besides, the Pension Fund Regulatory and Development Authority (PFRDA) is also proposing to raise the limit of Rs 2 lakh to Rs 5 lakh as the maximum corpus one can walk away with at the time of retirement or exit of the scheme, without the need to purchase an annuity.

The rationale behind this is that a corpus over Rs 5 lakh and mandatory purchase of annuity can offer a minimum pension of Rs 1,000 per month.

As of now there are as many as 12 insurance providers empanelled with the PFRDA to offer annuity products and there are eight pension fund managers that invest the subscribers' fund in various schemes chosen by them.

The pension fund managers on board the PFRDA have generated returns of 12.03 per cent in equity schemes; corporate bonds 10.02 per cent; government securities (G-sec) 9.66 per cent since the inception of NPS in 2009.

Funds invested in central and state government schemes have generated returns of 9.94 per cent and 9.83 per cent respectively over these nearly 12 years.

PFRDA runs two flagship pension schemes-- National Pension System (NPS) and Atal Pension Yojana (APY).

It registered a growth of 23 per cent in its overall subscriber base to over 4.24 crore (424.40 lakh) as of March 31, 2021. The assets under management grew by 38 per cent to Rs 5,78,025 crore.

National Pension System (NPS) launched in 2009 mainly caters to organised sector employees including all government employees in centre and states. APY, launched in 2015, is mainly meant for the employees working in the unorganised sector in the country.