Fixed investment tenor of 10 years under guaranteed return scheme: PFRDA

Subscribers to the much-awaited Minimum Assured Return Scheme (MARS) under the new pension system (NPS) will have to stay invested for 10 years to claim the guaranteed return.

“Also, a scheme would run for 10 years only. This means that 10 years shall be minimum, as well as maximum, tenor of investments under the scheme,” Supratim Bandyopadhyay, chairman, Regulatory and Development Authority (PFRDA), told Business Standard.

Only those investors who remain invested for 10 years will get a guaranteed return and if the actual return falls below the assured amount, managers shall bridge the gap.

This will be the only product that shall be launched under MARS, for now, Bandyopadhyay said.

The was to come out with the scheme by the end of this month. But there has been a delay because the minimum net-worth/capital requirement for managers and the guaranteed rate of return on the scheme are yet to be decided.

Under the current schemes, sponsors — individually or jointly — must have a net-worth of at least Rs 50 crore on the last day of each of the preceding five financial years, before they make applications to the . Of that, at least Rs 25 crore should be the capital.

MARS shall be launched for the private sector. For government employees, approval from the Centre and states is needed to include it among the options of investments, Bandyopadhyay said.

EY Actuarial Services, consultants to the on MARS, gave six structures to the pension regulator. The regulator and chose only one of them.

“This one is the simplest of all. We (PFRDA) and agreed that there should be a fixed guarantee for a fixed number of years. The fixed rate of guarantee will now be decided. The requirement of minimum net-worth/capital will depend on the rate of guarantee,” Bandyopadhyay said.

The product was discussed at the recently concluded meeting of the pension advisory committee of the PFRDA. ” The committee agreed to it. Once the product is internally ready with a guaranteed level, we will take it to the board for approval,” the PFRDA chairman said.

The rate of guaranteed return is being worked out by EY Actuarial Services.

Bandyopadhyay did not rule out coming out with more MARS products later. “Yes, in the future, more than one product may be launched, depending on how customers are accepting this product. But at present, it will be one scheme with one rate and fixed tenure, and it will be sold by all pension fund managers,” he said.

MARS assumes importance since a few state governments, such as Rajasthan, Chhattisgarh and Jharkhand, have opted out of the NPS and embraced the old pension system (OPS); Punjab is considering the same.

The Centre had introduced the NPS mandatorily for its new employees from January 1, 2004, and subsequently, all the states except West Bengal, had adopted the NPS for their employees.

The pensioner gets assured benefits under the OPS, usually 50 per cent of his last-drawn basic salary and dearness relief, which is adjusted every six months in line with inflation. There are no assured benefits but defined contributions in the NPS, at present. MARS tries to fill this gap in the NPS to an extent.

The PFRDA Act talks of putting in place MARS products, but they have not been launched yet. The Act talked about having these products by the end of 2013-14.

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