The Pension Fund Regulatory and Development Authority (PFRDA) is preparing to launch a guaranteed return scheme called Minimum Assured Return Scheme (MARS).
Context
The Pension Fund Regulatory and Development Authority (PFRDA) is preparing to launch a guaranteed return scheme called Minimum Assured Return Scheme (MARS).
About MARS
- This will be the first scheme from the pension regulator that will offer a guaranteed return to investors.
- Currently, the NPS gives returns annually, based on prevailing market conditions.
- The actual returns under the scheme will depend on the market conditions.
- Any shortfall will be made good by the sponsor, and the surplus will be credited to the subscribers’ account.
Two options are likely to be on offer-
- Under the fixed guarantee option, the guaranteed return is fixed along the accumulation phase.
- Under the floating guarantee option, the guaranteed rate of return is not fixed along the savings phase.
- The floating guarantee depends on the development of the 1-year interest rate until retirement.
- The current 1-year interest rate is assigned to each annual contribution made, and is valid until retirement so that, at each point of time, there is a different minimum return.
- This is similar to the ATP system in Denmark.
Lock-in option
- According to the current plan, lock-in may be applicable on each contribution, and will be applied based on the period since that contribution has been made.
- It may also consider multiple lock-in period options (or staggered guarantee periods) for flexibility.
Limit of Contribution
- Minimum and maximum monetary limits on contributions may be prescribed. The attraction for investors will be the minimum guaranteed return.
What is PFRDA?
- It was established through the Pension Fund Regulatory & Development Authority Act, 2013.
- Pension Fund Regulatory and Development Authority (PFRDA) is a statutory regulatory body set up under PFRDA Act enacted on 01.02.2014 .
- It is under the jurisdiction of the Ministry of Finance .
- PFRDA is the authority that operates the National Pension System (NPS), subscribed by employees of Government of India, State Governments and by employees of private organizations & unorganized sectors.
- It has an objective to promote old age income security and protect the interests of National Pension System subscribers.
- The PFRDA is ensuring the orderly growth and development of the pension market.
- The Authority shall consist of a Chairperson and not more than six members, of whom at least three shall be whole time members, to be appointed by the Central Government.
About NPS
- National Pension System (NPS) is a voluntary pension cum investment scheme launched by Government of India to provide old age security.
- It is being administered and regulated by PFRDA set up under PFRDA Act, 2013.
- NPS can be broadly classified into two categories -
- Government Sector (Central and state governments)
- Private sector (Corporates and individuals).
- Both resident and Non-resident citizens of India in the age group of 18-65 years can join NPS, an NRI can also open an NPS account.
- NPS offers two types of accounts- Tier-I and Tier-II.
- Tier-I account is the pension account having restricted withdrawals.
- Tier-II is a voluntary account which offers liquidity of investments and withdrawals.
- Upon successful enrolment, a Permanent Retirement Account Number (PRAN) is allotted to the subscriber under NPS.
- Subscriber contributes periodically and regularly towards NPS during the working life to create the corpus for retirement.
- On retirement or exit from the scheme, the corpus is made available to the subscriber with the mandate that 40% of the corpus must be invested into annuity to provide a monthly pension post retirement or exit from the scheme.
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