Pensions regulator PFRDA has come out with new options for central government subscribers of National Pension System (NPS). The NPS works on a defined contribution basis and contribution to Tier-I is mandatory for all government servants joining government service on or after 1-1-2004. The latest circular from PFRDA talks about the choice of the pension fund, choice of investment pattern, implementation of choices to legacy corpus and time for transfer of legacy corpus estimated to be worth over Rs 1 lakh crore. The total subscribers under government sector have increased to 62.47 lakh.
Choice of pension fund – Like in the case of subscribers in the private sector, the government subscribers have been allowed to choose any one of the pension funds including private sector pension funds. They can change their option once in a year. “However, the current provision of combination of public sector pension funds will be available as the default option for both the existing as well as new government subscribers,” said the circular dated May 8.
There are 8 pension fund managers – SBI, LIC, UTI, Kotak, ICICI, Reliance, HDFC, and Birla. SBI, UTI and LIC manage tens of thousands of crores, while the rest individually manage much smaller assets. This is because earlier government sector NPS subscribers could only invest with SBI, UTI and LIC.
Choice of investment pattern – The existing scheme in which funds are allocated by PFRDA among the three PSU fund managers based on their past performance shall continue as the default scheme for both new and existing subscribers.
Government employees who prefer a fixed return with the minimum amount of risk shall be given an option to invest 100% of the funds in the government securities scheme (Scheme G).
Government employees who prefer higher returns shall be given two options. Option 1 is the Conservative Life Cycle Fund with maximum exposure to equity capped at 25% – LC-25. Option 2 is Moderate Life Cycle Fund with maximum exposure to equity capped at 50% – LC-50.
“The subscribers may exercise of the above choice of investment patterns twice in a financial year,” said the PFRDA.
Legacy corpus – Transfer of a huge legacy corpus of more than Rs 1 lakh crore in respect of the government sector subscribers from the existing pension fund managers is likely to impact the market. It may be practically difficult for the PFRDA to allow government sector subscribers to change pensions funds or the investment pattern in respect of the accumulated corpus, at one go. “Therefore, at present, change in pension funds or investment pattern is allowed in respect of incremental flows only,” said the PFRDA circular.
Five years – PFRDA also said that it will draw up a scheme in due course for the transfer of the accumulated corpus as per new choices of government subscribers in a reasonable time, say five years. “Once PFRDA draws up this scheme, change in the pension funds or investment pattern shall be allowed in respect of the accumulated corpus in accordance with the scheme,” the circular said.