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Pension Products Not At Par With NPS: Say Insurers

Posted on April 26, 2013 by Akanksha

Pension products might take a little longer to be counted among big contributors to the portfolio of life insurers. These used to be 25% of the total offerings and now down to single digit. While life insurers have started introducing new products in this segment, insurers admit they are at a disadvantageous position, compared to the New Pension System (NPS) by the Pension Fund Regulatory and Development Authority (PFRDA).

In January 2012, the Insurance Regulatory and Development Authority (IRDA) had said that pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said that annuity had to be bought from the same company.

These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap filled after some private life insurers launched pension products.

Most life insurers feel that the guarantee element has made pension products different from NPS, while their fundamental structures are the same.

Unlike NPS, the service tax is applicable to pension products.

Insurers say that reasons which are restraining life insurers from competing effectively in the pension space include, insistence on annuity being bought from the same insurer, no partial withdrawals allowed etc.

With the current regulations in place, insurers are not comfortable offering non-zero guarantee for pension.

Insurers had shied away from introducing pension products due to the guarantee return requirement. NPS is not mandated to offer these returns. And that skews the pension playing field. So selling pension on the insurance platform is that much more difficult and requires the building of significant pool, say insurers.

Insurers say that they also have to maintain a conservative strategy in terms of investment, to give these non-zero returns.

Insurers say that until these challenges are addressed, pension growth is likely to remain muted.

Life insurers are also planning to take up this issue with the IRDA. Insurers will request the IRDA to make pensions at par with NPS.

However, insurers are hopeful that these issues will get resolved as they move ahead.

With the right nudge, insurance companies can make a significant contribution in pensions since they have the distribution backbone to reach these products to a large audience, say insurers.

Categories: News | Tags: IRDA, New Pension Scheme, NPS, Pension Products, PFRDA, Service Tax

PFRDA Tightens Investment Norms For Private Pension Fund Managers

Posted on April 22, 2013 by Akanksha

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Tightening its norms for the private sector, in the National Pension System (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has barred fresh investments in equity mutual funds and Exchange Traded Funds (ETFs) from the corpus. PFRDA has also asked these fund managers to restrict their single-industry exposure to 15% of NPS investments under all schemes.

PFRDA has issued these clarifications after pension fund managers had sought clarity on certain clauses of the investment management agreement for the private sector.

In terms of the revised investment guidelines for private sector NPS, fresh investments in equity-related mutual funds and ETFs are disallowed.

Fund managers allowed to offer NPS are LIC pension fund, SBI pension fund, UTI retirement solutions, ICICI Prudential pension fund management, Kotak Mahindra pension fund and Reliance Capital pension fund.

As on March 2, NPS had 4.5 million subscribers and a corpus of Rs 28,400 crores. About 0.2 million subscribers are from the private sector, while 2.7 million are from central/state governments.

A total of 1.58 million subscribers are served by NPS-lite, which is designed to ensure ultra-low administrative and transactional costs.

On the debt securities front, PFRDA said securities selected for investments should have a residual maturity period of at least three years from the date of investment by the pension fund manager.

On the industry exposure of pension fund managers, PFRDA said this should be restricted to 15% of all NPS investments, under all schemes. Investments in equity should be restricted to 5% (sponsor group companies) and 10% (non-sponsor group companies) of the market of a company’s paid up equity capital.

On rated asset-backed securities, PFRDA said these would be eligible for investments under ‘asset class-C’ (credit risk bearing fixed income instruments), provided these have a residual maturity of not less than three years and an investment grade rating from at least two rating agencies.

Categories: News | Tags: ETF, Exchange Traded Fund, NPS, PFRA

PFRDA Tightens Audit Norms For Fund Managers

Posted on April 17, 2013 by Akanksha

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The Pension Fund Regulatory and Development Authority (PFRDA) have tightened rules for fund managers, making it mandatory to get their investments and fees certified by auditors. The move aims at raising accountability and lowering chances of malpractices with long term savings of employees.

The new rule mandates auditors to certify that PFMs’ investments have been valued in accordance with the guidelines issued by PFRDA and transaction and claims raised by different entities are in accordance with the prescribed fee.

Recently, PFRDA had decided to appoint a consultant to review the performance of pension fund managers (PFMs) as there were complains of accounts not being transparent.

Moreover, the subscribers were not able to trace where their money was invested and how much return it yielded.

The move gain significance in the wake of the regulator allowing PFMs to invest directly into equities with a cap of 5% in a single company.

PFRDA said that the balance sheet and revenue account of the New Pension Scheme (NPS) must comply with PFRDA’s guidelines and the accounting standards notified under the Companies Act.

The auditor now has to submit a separate report called NPS scheme-detailed audit report (NPS-DAR) along with scheme audit report accounts for a particular financial year.

The audit report will have to be approved by the board of PFM. The board of directors of PFM will also have to submit a ‘compliance report’ within two months of the receipt of detailed audit report.

Categories: News | Tags: Audit Norms, Fund Managers, New Pension Scheme, NPS, PFRDA

NPS Fetching Near Double Digit Returns

Posted on April 4, 2013 by Akanksha

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The National Pension System (NPS) is fetching near double digit returns, which is at least a percentage point higher than what Employee’s Provident Fund (EPF) or Public Provident Fund (PPF) offer.

NPS is a voluntary long term saving scheme for private sector but mandatory for those who joined the government from 2004.

In case of the private sector, the top performance was on offer for those who had a significant exposure to corporate bonds with all five fund managers –UTI, ICICI, Reliance, SBI and Kotak – offering between 13.4% and 15% over the last one year. Even since inception, the returns have been in the 8.89-11.94% range.

Corporate bonds are followed by government securities, where one-year return has been over 13.5% for all fund managers.

For equity, where maximum exposure of shares is capped at 50%, returns over the last one year have ranged between 8.45% and 11.56%.

The Employee’s Provident Fund Organization (EPFO) has fixed the interest rate for 2012-13 at 8.5%. While government has announced that PPF would fetch 8.7% this fiscal. UTI’s Retirement Plan, a mutual fund scheme that has been around since 1994, has offered returns of 10.5% since its launch, while one-year return is 8.62%.

The flip side is that unlike PPF or EPF, the retirement corpus is subject to tax, although the government has promised to amend the law. But if you choose to use the entire amount to buy annuity, you may avoid paying tax.

Individuals who are not part of the government set up, can invest anything upwards of Rs 6,000 a year under NPS and can withdraw 40% of the amount when they turn 60. The balance 60% has to be used to buy an annuity or a pension plan from an insurance company that will earn you a monthly income for the rest of your life.

When it comes to private sector, the scheme was opened in 2009 but has been slow to take off as fund managers have not pushed it too given the low commission earned by them. As a result, a bulk of the fund, which added up to nearly Rs 29,000 crores at the end of March 2013, came from central and state government employees and NPS Lite which is meant for low income groups.

Over the last one year, central government employees earned over 12% and at least 9.67% since inception, depending on the fund manager.

For state government employees, one-year returns range between 12.8% and 13.3%.

Unlike the private sector, for government who join from 2004, 10% contribution to pension fund is mandatory with their employer providing a matching contribution.

Categories: News | Tags: EPFO, New Pension Scheme, NPS

PFRDA Allowed NPS Subscribers Lump Sum Withdrawal On Exit

Posted on March 15, 2013 by Akanksha

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Pension Fund Regulatory and Development Authority (PFRDA) has allowed investors in the New Pension Scheme (NPS) to withdraw lump sum amount at the time of their exit, as against the current practice of ‘phased withdrawals’ every year.

The replacement of ‘phased withdrawal’ with ‘deferred withdrawal’ was taken after PFRDA received feedback from various stakeholders.

Stakeholders informed PFRDA that subscribers should be given a specific option to defer or time the entire lump sum withdrawal (maximum 60%) at the time of exit from NPS.

This would be a better option than forcing subscribers to choose a certain percentage each and every year while opting for the ‘phased withdrawal’ option, including the year in which they are exiting the system.

Under the ‘deferred withdrawal’ facility, the subscribers at the time of exit from NPS can exercise the option to defer withdrawal of eligible lump sum withdrawal and stay invested in the NPS.

However, no fresh contributions will be accepted and no partial withdrawals will be allowed during such a period of deferment.

The subscriber can withdraw the deferred lump sum amount at anytime before attaining the age of 70 years by giving a withdrawal application or notice.

If no such notice is given, the accumulated pension wealth would be automatically monetized and credited to his bank account on attaining the age of 70 years.

As on March 2, NPS manages a corpus of over Rs 28,400 crores of 44.93 lakh subscribers. Around 2 lakh subscribers are from the private sector while 27 lakh are from central/state governments.

Around 15.79 lakh subscribers are served by NPS Lite, which is designed to insure ultra-low administrative and transactional costs.

NPS has been extended to all citizens of India with effect from first May 2009.

Categories: News | Tags: New Pension Scheme, NPS, PFRDA

PFRDA Capped NPS Equity Exposure At 5% in Sponsor Group Companies

Posted on March 14, 2013 by Akanksha

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The Pension Fund Regulatory and Development Authority (PFRDA) have capped the equity exposure of New Pension Scheme (NPS) to 5% in sponsor group companies and 10% in other blue-chip companies. The move is aimed at preventing concentration of risks.

The PFRDA has also allowed Pension Fund Managers (PFMs) to park money in fixed deposits of more than one-year maturity of financially sound banks as part of their investment in fixed income instruments like investment grade bonds of corporate, infrastructure firms and municipalities. Banks should have a minimum net worth of Rs 500 crores and track record of consecutive net profit, a capital adequacy ratio of 9% and net non-performing ratio of less than 5% of advances in the last three years.

The change in rules has come amid demand from PFMs for widening the investment horizon.

Earlier, fund managers were allowed to invest only in equity index funds that replicated the sensex and Nifty. But the PFRDA had to change the investment rules as investing in equity indexes of mutual funds have become costlier owing to 1.5% expense ratio charged by fund houses.

In a notification, PFRDA has said that PFMs are allowed to invest in shares of companies which are listed in Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and on which derivatives are available or are part of the sensex and Nifty indices.

Investment in any equity stock of a sponsor group should be restricted to 5% or the paid up equity capital of all the sponsor group companies or 5% of the asset under management (AUM) of the NPS scheme, whichever is lower.

In case of non-sponsor group companies, the PFMs are allowed to invest up to 10% of paid up equity capital or AUM, whichever is lower.

Investment in Initial Public Offering (IPO) or Follow-on Public Offering (FPO) is not allowed. Also, investments in unlisted companies are not allowed.

PFMs are barred from short sale and carry forward transactions or engage in badla finance.

PFRDA has not raised the overall equity investment limit of 50%.

At present, the NPS corpus is managed by PFMs promoted by LIC, UTI AMC, SBI, ICICI bank, Kotak Mahindra Bank and Reliance Capital.

The total NPS corpus has grown to around Rs 28,000 crores at the end of February 2013 since its inception in January 2004. The corpus has grown 77% on year-on-year basis to Rs 15,163 crores in 2011-12 and 83% in 2010-11.

The NPS initially enrolled new central government employees and subsequently rolled-out to employees in 24 states, PSUs, corporates and even the unorganized workers.

Higher returns than Employee’s Provident Fund Organization (EPFO) and Public Provident Fund (PPF) have lured employees in private companies to enroll in NPS.

Since December 2011, about 400 corporate entities have enrolled new and existing staff under the NPS.

Categories: News | Tags: AUM, New Pension Scheme, NPS, Pension Fund Managers, PFMs, PFRDA

LIC Selected as Default NPS Annuity Service Provider

Posted on March 4, 2013 by Akanksha

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Pension Fund Regulatory and Development Authority (PFRDA) has chosen state-owned Life Insurance Corporation of India (LIC) as default annuity service provider for subscribers exiting from New Pension System (NPS) and seeking withdrawal of accumulated pension wealth. It will be applicable for all variants of NPS.

PFRDA has empanelled seven Annuity Service Providers (ASPs) for providing annuity services to NPS subscribers.

While subscribers are required to select an empanelled ASP along with an annuity scheme from those offered by the chosen ASP at the time of exiting from NPS, PFRDA has now decided to assist subscribers by providing a default option.

The default scheme offers annuity – a policy by an insurer designed to provide payments to the holder at specified intervals- for life with a provision of 100% of the annuity payable to spouse during her-his life on death of annuitant.

Besides LIC, other ASPs include SBI Life, ICICI Prudential Life, Bajaj Allianz Life, Star Union Dai-Ichi Life and Reliance Life.

Under the provisions of NPS, a maximum of 60% of corpus accumulated at the time of exit, which is normally on the attainment of 60 years of age, can be withdrawn but a minimum 40% of corpus has to be utilized for purchasing an annuity from one of the empanelled ASPs.

The NPS was introduced for the new recruits who joined government service on or after first January 2004. From May 2009, the NPS was opened up for all citizens in India to join on a voluntary basis.

At the end of 2012, over 42 lakh subscriptions were enrolled with a corpus of over Rs 26,000 crores.

Categories: News | Tags: Annuity Service Providers, APS, Bajaj Allianz Life, ICICI Prudential Life, LIC, New Pension System, NPS, Pension Fund Regulatory and Development Authority, PFRDA, Reliance Life, SBI Life, Star Union Dai-ichi Life, Subscriptions

PFRDA Pushes Corporate to Offer NPS

Posted on January 31, 2013 by Akanksha

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The race between two state-sponsored retirement savings schemes seems to be picking up pace. With the mere Rs 6,500 monthly wage ceiling for mandatory provident fund contributions, the interim pension regulator, Pension Fund Regulatory and Development Authority (PFRDA) is urging corporate employers to join the National Pension System.

Most workers are already outside the mandatory PF net as minimum wages in most sectors is much above Rs 6,500 per month.

Instead, the NPS offers higher returns and is a much more efficient scheme for corporate employers, said PFRDA.

In a recent meeting with industry chambers, finance minister, P. Chidambaram, had also asked them to push their member companies to join the NPS.

Already, 350-odd companies, including Reliance group companies, Wipro, and ICICI Bank have begun to offer the defined contribution based pension scheme to their employees.

Compared to 8.25% interest rate offered by EPFO, the NPS gives average returns of 14% in equity and corporate debt and over 10% for government bonds making it more optimum choice for workers.

Moreover, tax benefits are also available for the scheme, which puts it at par with other similar retirement schemes.

Launched on first May 2009, the NPS for private citizens has over 2 crores subscribers and a corpus of over Rs 1,000 crores.

The low wage cut-off for compulsory provident fund deposits has already become a cause of concern for Employee’s Provident Fund Organization (EPFO) that is concerned over dipping membership that is resulting in a fall in contributions.

With minimum wages in most states over the Rs 6,500 per month ceiling, formal sector workers have begun to slip out of PF net.

But analysts believe that it is early days for the NPS to claim to be a substitute for the EPFO as it is an untested product. Companies do not consider the NPS a substitute to the EPFO, but they look at it as a layer over and above the provident fund. They also say that substitutability will happen when there is portability between the two products. And given the overarching powers of the EPFO, no employer would suddenly want to stop PF contributions and become a defaulter.

Categories: News | Tags: EPFO, New Pension Scheme, NPS, Pension Fund Regulatory and Development Authority, PFRDA

Govt. Considering Extending NPS Swavalamban Scheme by 3-5 Years

Posted on January 15, 2013 by Akanksha

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The finance ministry is considering a proposal to further extend the co-contributory Swavalamban scheme under the National Pension System (NPS) by about three to five years to bolster the retirement savings of unorganized sector workers.

The interim pension fund regulator, Pension Fund Regulatory and Development Authority (PFRDA) has pitched for the further extension of Swavalamban scheme on grounds that pension is a long term product.

As per calculations, a worker needs to save Rs 1,000 per month for at least 20 years to have a basic corpus of Rs 2 lakh. As per PFRDA, pension is a long term product and central contribution will promote savings by low income groups.

Membership to NPS Lite has touched 12.6 lakh while Swavalamban currently has 7 lakh accounts. The finance ministry wants to bring around 40 lakh workers into the ambit of contributory pension schemes.

Extending the scheme by three years will require an additional funding support from the central government of Rs 2,065 crores.

Swavalamban scheme was launched in 2010. It is a co-contributory pension scheme. Under this scheme central government contributes annual Rs 1,000 in each NPS account having a saving of Rs 1,000 to Rs 12,000 per year.

The scheme, which is a part of low cost NPS Lite targets anganwadi workers, construction workers, occupational classes like weaver, fishermen, farmers, dairy workers.

In April 2012 it was extended from 2013-14 by a period of three years to 2016-17.

Categories: News | Tags: NPS, PFRDA

DSP BlackRock to Join NPS as Fund Manager, IDFC Pulls Out

Posted on November 7, 2012 by Akanksha

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DSP BlackRock Investment Managers (P) Ltd has decided to join as fund manager to manage the New Pension Scheme (NPS) corpus, while IDFC has pulled out.

DSP BlackRock Investment Managers has decided to join NPS under the revised registration guidelines – 2012, and has also obtained in-principle clearance from PFRDA in this regard.

And IDFC decided not to renew its tenure as fund manager which was expiring on 31 October 2012. IDFC Pension fund Management Co Ltd was set up in April 2009 as a joint venture between Infrastructure Development Finance Company Ltd (IDFC) and IDFC Asset Management Company private Ltd (IDFC AMC).

DSP BlackRock Investment Managers, which oversees assets worth over Rs 30,000 crores for DSP BlackRock MF, will now join the existing managers –SBI pension funds, UTI Retirement Solutions, ICICI Prudential Pension funds management, Kotak Mahindra Pension fund and Reliance Capital Pension fund and LIC Pension fund (manages only funds of government employees).

The Pension Fund Regulatory and Development Authority (PFRDA) appoint fund managers to manage retirement funds under NPS.

In the private sector of NPS, the upper ceiling of the investment management fees was recently fixed at 0.25% each year of the assets under management with effect from first November, 2012. This fee is inclusive of brokerage except custodian charges and applicable taxes.

Categories: News | Tags: DSP BlackRock Investment Managers, Infrastructure Development Finance Company Ltd (IDFC), New Pension Scheme, NPS, Pension Fund Regulatory and Development Authority, PFRDA

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