In a move aimed at popularising the National Pension System among the employees in the non-government sector, the Pension Fund Regulatory and Development Authority (PFRDA) on Tuesday permitted fund managers to customise and offer multiple schemes with equity exposure up to 100% to private-sector subscribers.
The fund managers could devise the schemes depending on the persona of corporate employees or gig-workers.
This contrasts with the current system, where PFRDA allows one scheme per subscriber with predetermined investment options, with equity exposure capped at 75%.
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Private-sector participation in NPS has grown at a fast pace in recent years, but still it accounts for a fifth of the total assets Under Management (AUM).
Higher flexibility, higher costs
However, the potentially high-reward Multiple Scheme Framework (MSF) model, to be effective from October 1, would also come at a higher cost to the subscribers. Under MSF, the total charges are capped at 0.3% of Assets Under Management (AUM) annually, with an additional incentive of 0.1% allowed for PFs that attract more than 80% new subscribers to a scheme. Under existing NPS schemes, the charges are 0.03% -0.09% of AUM per annum.
“Under MSF, PFs are permitted to design schemes that are tailored to specific subscriber persona. These may include schemes for self-employed professionals, digital economy (platform-based) workers, or corporate employees where employer co-contributions are facilitated,” according to a PFRDA circular.
“Each scheme may have at least two variants, one moderate and one high-risk, with equity allocation allowed up to one hundred percent in the high-risk category. PFs may also, at their discretion, introduce low-risk variants,” it said.
By enabling multiple schemes under one identity of PAN, the framework removes constraints on diversification and provides subscribers with greater scope for aligning their investments with their evolving retirement and wealth-building goals, the regulator said.
Opportunities for pension funds
For pension funds (PFs), the framework opens opportunities for product innovation and market expansion, allowing them to design schemes suited to diverse groups and to compete on performance and service quality.
All schemes introduced by PFs under this framework will require prior approval from PFRDA. PFs must comply strictly with the Authority’s investment norms.
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