NPS subscribers can soon switch asset allocation 4 times in a year

Pension fund regulator PFRDA will soon allow the subscribers of the NPS scheme to change the investment pattern as many as four times during a financial year as there has been a demand to increase the limit, its Chairman said on Tuesday.

Currently, the subscribers under the NPS scheme are allowed to change the investment pattern twice in a financial year.

"One can change the investment choice twice in a year. Now, in a very short period of time, we are going to increase it to four times because there are requests that you allow more number of times (to change the investment pattern)," PFRDA Chairman Supratim Bandyopadhyay said during a webinar on the NPS scheme organised by industry body Assocham.

The only cautionary note PFRDA wants is that it is a long-term investment (product) to build a pension corpus, and it should not be treated akin to a mutual fund scheme, he said.

"People sometimes mix it up with some mutual fund kind of thing that can give good returns. You have to give it some time and thereafter, only you can use it (changing option). Use it judiciously, we are going to increase it to four times in a year (financial year)," the Pension Fund Regulatory and Development Authority's (PFRDA) chairman said.

Subscribers are allowed to allocate their investments in a mix of instruments such as government securities, debt instruments, asset-backed and trust-structured investments, short-term debt investments, and equities and related investments.

However, there are different rules for different sets of subscribers. For instance, government sector employees cannot have high exposure towards equities, while the corporate sector employees are allowed to allocate as much as 75 per cent of the asset towards equities.

Separately, the subscribers are also allowed to change their fund managers once in a year. The fund managers invest subscribers' pension assets in the prescribed investment schemes, as per their choice.

Currently, pension fund managers under NPS are — ICICI Prudential Pension Funds Management Company, LIC Pension Fund, Kotak Mahindra Pension Fund, SBI Pension Fund, UTI Retirement Solutions, HDFC Pension Management Co, and Birla Sun Life Pension Management.

Bandyopadhyay also said the PFRDA wants to offer a variable annuity product to the subscribers after retirement, aimed at shielding them against inflation.

"Once the annuity starts, that remains constant for your lifetime. Of course, there is one annuity (product) that gives a simple rise of three per cent per year but obviously, that will not take care of the risk of inflation.

"We have been talking to the insurance regulator (Irdai) because annuity is basically their domain and we have been talking to the annuity service providers also if they can think of this kind of variable annuity which can give some cushion against the rise of inflation," he said.

The PFRDA chairman said the Insurance Regulatory and Development Authority of India (Irdai) has made a working committee and a report has also been submitted by the committee.

"We are in discussion with Irdai to ensure that those kinds of products are released as quickly as possible," he added.

The NPS subscribers are required to buy annuity with 40 per cent of the corpus at the time of retirement to get a steady stream of pension.

The official also urged the industry body to urge the corporates associated with it to opt for the NPS scheme as well as to encourage their employees so that the pension needs at the time of retirement are taken care of well.

He said that even as the total number of subscribers under the National Pension System (NPS), including Atal Pension Yojana (APY), has crossed over 4.80 crore as on date, a meagre 13 lakh subscribers are from the corporate sector.

That the life expectancy has increased over the period of time and people live as high as 15-20 years more after retirement, he said generating a huge corpus for retirement is not easy and that one should start preparing at an early age to arrange for the pension needs.

The PFRDA administers two flagship pension schemes — NPS and APY. While the NPS mainly targets the employees working in the government and organised sector, including corporates, APY mainly caters to those working in the unorganised sector.