PFRDA considers variable annuity in NPS amid slow growth among corporate employees

Individual subscribers to National Pension System (NPS) have risen 33.5 per cent in a year till October 10, including self-employed and salaried individuals with corporates. However, even as an increasing number of corporates are giving the option to subscribe to NPS to their employees, the transition rate is meagre.

"We have almost all private players on board. For example, all big IT firms from Infosys, TCS to Wipro are with us. So, onboarding is not an issue. The real challenge lies in getting the employees to join us. This figure is quite less - just 1-2 per cent of total workforce. Now we are working with banks so that when they open salary accounts for the new joinees, they also give them a choice to open an NPS account," says PFRDA Chairman Supratim Bandyopadhyay.

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As many as 8,186 corporates have come on board with 10.50 lakh subscribers till October so far this year. It was 8.80 lakh last year in October from 6,795 corporates. There are 13.75 lakh individual subscribers, constituting both self-employed and salaried, a growth of 33.50 per cent from last year.

Meanwhile, as many as 70.40 lakh employees have joined the NPS scheme from the government sector. NTPC, ONGC, RITES and Indian Oil Corp are the latest entrants to NPS among CPSEs this year. There are 43 CPSEs with the NPS now, while three-four are in the process of getting on board.

Why choose NPS

Unlike other retirement options such as EPF or PPF, the NPS pension scheme helps you generate attractive returns by giving some equity exposure. The annual contribution gets invested in equity, corporate bonds and government securities. The exposure mix is determined as per the age of the subscriber. So, as you reach closer to the retirement age of 60 years, the equity exposure keeps reducing. Moreover, if you don't want pension at the age of 60, you can continue contributing to NPS for another 10 years. "We have auto-continuation of accounts after 60 years also so that those who don't want pension right at the retirement can continue for another 10 years to build a substantial corpus," says Bandyopadhyay.

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If you do want the money post retirement, you may take out a maximum of 60 per cent as lump sum, but a minimum of 40 per cent would need to be taken as annuity, that is, regular payments (monthly, quarterly, half-yearly or yearly) for a period of time that could also last the lifetime as per the payout option chosen. In case the total accumulated pension corpus is less than or equal to Rs 2 lakh, subscriber can opt for 100 per cent lumpsum withdrawal at the age of 60.

The interest rate that insurers currently offer on annuities typically remains fixed and guaranteed. Due to prudential requirements the rates that are offered on these annuities are often significantly lower than prevailing interest rate in the economy. To make it more attractive, the PFRDA is under discussion to come up with variable annuities and systemic withdrawal option in payouts. "The kind of annuities that we are giving now ensures that subscribers continue to get money so far they are alive. However, existing SWP options available in the market cannot ensure returns beyond 10-15 years. The kind of longevity we now see that could well go beyond 30 years post retirement, their corpus should last the lifetime. So, we are working on other concepts. We are borrowing ideas from overseas, especially the UK, as to how they have done it. It may not happen in near future, but we are seriously looking into it," says Bandyopadhyay.

AUM under PFRDA hits Rs 5 lakh crore

From Rs 2,203 crore in 2009, the total assets under management (AUM) with PFRDA has grown to Rs 5 lakh crore as on October 10. Out of this, NPS is Rs 4,92,114.50 crore, while Atal Pension Yojana (APY) Rs 13,309.51 crore.

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In NPS, the corporate side contributed Rs 52,000 crore to the AUM, while voluntary subscription directly from individuals stood at Rs 17,000 crore. It was Rs 36,774.26 crore and Rs 11,150.00 crore, respectively in the same month last year.

PFRDA has a target of achieving Rs 6 lakh crore AUM by March 2021 and adding over 7 lakh subscribers during the same period.

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