Minimum Assured Return Scheme: PFRDA

Why in News?

The Pension Fund Regulatory and Development Authority (PFRDA) has proposed a guaranteed return scheme, Minimum Assured Return Scheme (MARS), which will provide savers and people from the salaried class an option for their investments.

• This will be the first scheme from the pension regulator that will offer a guaranteed return to investors.
• India’s pension assets under management have already crossed the Rs 7-lakh crore mark and are expected to touch RS 7.5-lakh crore by end March this fiscal 2021-22.
• PFRDA is aiming for an AUM (Assets Under Management) of Rs 30-lakh crore by 2030.

What is PFRDA’s Proposal under MARS?

• About:
  • To have a separate scheme that can offer a guaranteed minimum rate of return to NPS (National Pension System) subscribers, especially those who are risk averse.
    • Currently, the NPS gives returns annually, based on prevailing market conditions.
  • The actual returns will depend on the market conditions. Any shortfall will be made good by the sponsor, and the surplus will be credited to the subscribers’ account.
• Options that will be offered:
  • Fixed Guarantee Option: Under the fixed guarantee option, the guaranteed return is fixed along the accumulation phase.
  • Floating Guarantee Option: Under the floating guarantee option, the guaranteed rate of return is not fixed along the savings phase.
    • The floating guarantee depends on the development of the 1-year interest rate until retirement.
• Lock-in- Period:
  • The Lock-in may be applicable on each contribution, and will be applied based on the period since that contribution has been made. It may also consider multiple lock-in period options (or staggered guarantee periods) for flexibility.
  • Withdrawals are likely to be directly linked to the lock-in period. The subscriber may have the option to withdraw or to stay invested after the lock-in period. However, there won’t be any guarantee applied on the investment after lock-in.
• Limit of Contribution:
  • Minimum and maximum monetary limits on contributions may be prescribed. The attraction for investors will be the minimum guaranteed return.

What is the National Pension System?

• About:
  • The Central Government introduced the NPS with effect from January 2004 (except for armed forces).
    • In 2018 to streamline the NPS and make it more attractive, the Union Cabinet approved changes in the scheme to benefit central government employees covered under NPS.
  • NPS is implemented and regulated by PFRDA.
  • National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS.
• Structure: NPS is structured into two tiers:
  • Tier-I account:
    • This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.
  • Tier-II account:
    • This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber.
    • The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.
• Beneficiaries:
  • NPS was made available to all Citizens of India from May 2009.
  • Any individual citizen of India (both resident and Non-resident) in the age group of 18-65 years can join NPS.
  • However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and Hindu Undivided Family (HUFs) are not eligible for opening of NPS accounts.

Source: BS