NPS regulations: Pension regulator goes in for comprehensive review, sets up two panels

Pension regulator PFRDA has set the ball rolling on undertaking a comprehensive review of NPS regulations as part of attempts to reduce its compliance burden and simplify norms for various stakeholders. It has now set up two committees for this comprehensive review, Deepak Mohanty, Chairman, PFRDA, has said.

While one committee is an internal one, the other is an external panel headed by former IBBI Chairman M.S. Sahoo. 

“This (comprehensive review of regulations) is a priority for us. It will be done this year. The two panels will look at compliance issues, reduce the compliance burden and give recommendations to rationalise regulations,” Mohanty told businessline.

The PFRDA move to undertake a comprehensive review of NPS regulations comes in the wake of Finance Minister Nirmala Sitharaman’s announcement in this year’s Budget speech that financial sector regulators will be “requested” to carry out a comprehensive review of existing regulations.

“For this, they (financial sector regulators) will consider suggestions from the public and regulated entities. Time limits to decide applications under various regulations will also be laid down,” Sitharaman had said in her Budget speech.

To meet the needs of Amrit Kaal and to facilitate optimum regulation in the financial sector, Sitharaman had said public consultation, as necessary and feasible, will be brought to the process of regulation-making and issuing subsidiary directions.

Mohanty, who took the helm at PFRDA in March, said based on the recommendations of the two panels, the pension regulator will decide on the next steps and consultations with intermediaries. 

What is NPS?

The National Pension System (NPS) is a government-initiated retirement savings programme that aims to provide a pension income to individuals during their retirement years. 

It was introduced in 2004 and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

NPS is open to all Indian citizens between the ages of 18 and 70 years. While it is mandatory for government servants who joined service on or after January 1, 2004, it is a voluntary scheme for other individuals.

It allows individuals to contribute towards their retirement savings, which are invested in a variety of financial instruments such as government securities, corporate bonds, and equities. 

KEY REGULATIONS 

The PFRDA is responsible for regulating and supervising NPS and has issued guidelines and regulations to ensure that the scheme is managed efficiently.

One of the key regulations under NPS are the investment guidelines. The PFRDA has specified the maximum percentage of assets that can be invested in various financial instruments. The investment guidelines ensure that the funds are invested in a diversified portfolio, reducing the risk of losses.

Another important regulation under NPS are the exit guidelines. NPS allows subscribers to withdraw their funds only on retirement or in the event of death or disability. The PFRDA has specified the minimum annuity that must be purchased by subscribers at the time of retirement, ensuring that they receive a regular pension income.

The PFRDA has also issued regulations for the appointment of Pension Fund Managers (PFMs) and custodians. PFMs are responsible for managing the investments of subscribers, while the custodians are responsible for safekeeping securities held by the PFMs. The regulations specify eligibility criteria for the appointment of PFMs and custodians, and also define their roles and responsibilities.

NPS assets under management have been growing at a frenetic speed in recent years, largely bolstered by the strong flow of new individual subscribers. As on date, NPS AUM stood at ₹9.2 lakh crore, and is on track to touch the ₹10 lakh-crore milestone by September-end, according to Mohanty. In the current fiscal, PFRDA is aiming to on-board 13 lakh new individuals in the NPS system, higher than the record million new subscribers seen in the non-government sector last fiscal. 

Since inception, Central Government employees have seen their NPS corpus record a 15-year CAGR of 9.38 per cent, with equity exposure of only 15 per cent. For the State Government, the return since inception stood at 9.24 per cent.