The Pension Fund Regulatory and Development Authority (PFRDA) has unveiled a proposed guaranteed return scheme, the Minimum Assured Return Scheme (MARS). This scheme is designed to offer a safe investment option for savers and salaried individuals. Uniquely, this will be the first such scheme from PFRDA offering a guaranteed return to investors.
PFRDA’s Goal & MARS’s Proposal
As India’s pension assets under management soared beyond Rs 7-lakh crore and projected to reach approximately Rs 7.5-lakh crore by the end of fiscal year 2021-22, PFRDA aims for an Assets Under Management (AUM) of Rs 30-lakh crore by 2030.
The central premise of MARS is to introduce a standalone scheme providing a guaranteed minimum rate of return to National Pension System (NPS) subscribers. This scheme is particularly appealing to those who are risk averse. Notably, NPS returns, typically announced annually, rely heavily on prevailing market conditions.
MARS’s Options: Fixed Guarantee & Floating Guarantee
MARS offers two options: fixed guarantee and floating guarantee. The fixed guarantee option maintains a constant return throughout the accumulation phase. On the other hand, the floating guarantee option does not guarantee a set return during the savings phase, instead being dependent on the yearly interest rate progression until retirement.
MARS’s Lock-in Period & Limit of Contribution
MARS may feature a lock-in period applicable to each contribution, based on its original deposit date. Multiple lock-in period options could be provided for added flexibility. Withdrawals may be tied directly to the lock-in period, with subscribers having the option to withdraw or stay invested post-lock-in. However, no guarantees apply to investments made after the lock-in term. As for contributions, both minimum and maximum monetary limits may be set. The chief appeal for investors lies in the minimum guaranteed return.
About National Pension System
Introduced by the Central Government from January 2004, the NPS excludes armed forces. To make it more appealing, the Union Cabinet approved changes to benefit central government employees under NPS in 2018. The system is overseen and regulated by PFRDA with National Pension System Trust (NPST) being the registered owner of all assets under NPS.
The structure of NPS includes two tiers: a non-withdrawable permanent retirement account (Tier-I) and a voluntary withdrawable account (Tier-II), which is only permitted when an active Tier I account exists in the name of the subscriber.
Since May 2009, NPS became accessible to all Indian citizens. Any Indian citizen, both resident and non-resident, aged 18-65 years can join NPS. However, Overseas Citizens of India (OCI), Person of Indian Origin (PIO) card holders, and Hindu Undivided Family (HUFs) are ineligible for NPS accounts.
Overview of Pension Fund Regulatory and Development Authority
PFRDA is a statutory Authority established by the Parliament. Its mandate is to regulate, promote, and ensure orderly growth of the National Pension System (NPS). It operates under the Department of Financial Services within the Ministry of Finance. Among its primary duties are appointing various intermediate agencies such as Pension Fund Managers, Central Record Keeping Agency (CRA), developing, promoting and regulating the pension industry under the NPS, and administering the APY.