PFRDA to engage consultancy for separating NPS Trust, structuring

 The Pension Fund Regulatory and Development Authority (PFRDA) will engage a consultancy that will make suggestions for its organisational structuring as it seeks to segregate the NPS Trust.

In the Union Budget for 2019-20, the government had proposed to separate the NPS Trust from the pension regulator in order to address issues over conflict of interest.

Keeping in view the wider interest of the subscribers and to maintain arm's length relationship of the NPS Trust with the PFRDA, steps will be taken to separate the NPS Trust from the authority with appropriate organisational structure, Finance Minister Nirmala Sitharaman had said.

The PFRDA undertook organisational restructuring in 2017, however, the changing regulatory requirements and proposed changes in the legal framework governing the functions of the authority, it is important to re-assess the organisational structure, the pension fund regulator said while inviting Expression of Interest (EoI) for hiring a professional consultancy firm.

It is important to strengthen PFRDA's capabilities to meet the challenges in the regulatory domain, trends and preparedness to face the future challenges, it added.

"It is, in this context, PFRDA desires to engage a professional business/ strategic management consultant to study, examine and make appropriate recommendations in the areas of organisational structure, segregation of roles and responsibilities of NPS Trust, human resources and technological requirements," PFRDA said.

The consultant among others will have to identify the specific areas for studying the inter-linkages between PFRDA and NPS Trust with regard to their roles and responsibilities, it added.

The NPS Trust takes care of the assets and funds under the National Pension System (NPS) in the interest of the subscribers.

The consultant is expected to deliver a detailed report according to the objectives and scope of the study, as per terms of reference within stipulated time, PFRDA said.

It is expected that the study is complete within two months. However, in case of the contingency of major changes happening in the external environment of laws, regulations, etc., which may have the effect of altering or making irrelevant the conclusions/findings, PFRDA may consider an extension of project period, it said further.

The pension fund regulator said that formation of consortium or association of consultants and engaging of sub-consultants is not allowed, however, it reserves the right to allow the same if the circumstances require so.

PFRDA regulates the National Pension System (NPS) and the Atal Pension Yojana (APY).

NPS is subscribed by central and state government employees, autonomous bodies as well as by employees of private/corporate and unorganised sector organisations. While APY is mainly for the employees working in the unorganised sector.

PFRDA seeks systematic withdrawal in NPS, tax only on interest component

The Pension Fund Regulatory and Development Authority (PFRDA) wants systematic withdrawal plans (SWPs) to be allowed in the National Pension System (NPS), so that subscribers may choose a more efficient option than annuity products.

Supratim Bandyopadhyay, whole-time member (finance) of the PFRDA, on Friday shared a clutch of changes that the regulatory body is seeking from the government.

According to people in the know, the PFRDA is expecting some of these changes to be introduced by the Centre in the upcoming Budget itself.

In the NPS, 40 per cent of the accumulate pension assets need to be used for an annuity product, while 60 per cent can be withdrawn by the subscriber. PFRDA officials say that with lower returns and taxation on annuities, investors would be better served with the SWP option.

Even though 60 per cent of the total money received at maturity from the NPS is tax-free, annuities are taxed in the hands of investors. PFRDA has suggested that only interest earned should be taxed and not the entire annuity. As on December 14, 2019, the total assets under management of NPS stood at Rs 3.92 trillion.

As part of its Budget proposals, PFRDA has also asked the government to increase the deduction under Section 80CCD (1B) to Rs 1,00,000 from Rs 50,000 per annum.

Instead of different regulatory bodies overseeing pension products, the PFRDA wants all pension-related products to be brought under its ambit.

At present, the overall assets managed in pension products stand at around Rs 25 trillion.

It has also suggested that the NPS trust be independent of the PFRDA. “Being the creator and settler of the trust, there could be conflict of interest,” said Bandyopadhyay.

In addition, the body has proposed extending tax exemption under 80C to tier-II voluntary NPS accounts.

Right now, the exemption can only be availed by central government employees.

The PFRDA has been advocating exemption to other employees as well.

The PFRDA is also planning to develop an industry body on the lines of the Association of Mutual Funds in India (Amfi).

Bandyopadhyay said that we have been pleased with the investor awareness work done by Amfi to deepen the penetration of MF products.

To improve the management fee at which NPS products are offered, there could be a fresh request to submit a proposal to set a new benchmark for the same, said people in the know.

Currently, the low management fee at which NPS products are run also deters other players from entering the fray, industry sources said.

Over the last ten years, the equity NPS products have delivered annualised returns of 11 per cent. The corporate bond schemes have delivered 10.3 per cent returns, while government securities schemes have yielded 9.5 per cent returns.

Meanwhile, a conservative investor exposed to a diversified mix of the above products, would have seen a blended return of ten per cent over the last ten years.

Wish list

Increase deduction under Section 80CCD (1B) to Rs 1 lakh

Extend 80C exemption from central government employees to others

Bring all pension products under one regulatory body

New management fee structure for NPS products

NPS trust should be made independent of PFRDA