SBI, UTI, LIC to invest pension funds in equities

State Bank of India, UTI AMC and Life Insurance Corporation will start investing the corpus of the new pension system (NPS), estimated around Rs 2,000 crore now, in market instruments including 15 per cent in equities from end-June 2008.

Three fund managers sponsored by SBI, UTI AMC and LIC will manage the pension corpus in the ratio of 55 per cent, 40 per cent and 5 per cent respectively, said D Swarup, chairman of Pension Fund Regulatory and Development Authority.

"The pension fund managers will start operations latest by June-end, 2008," Swarup said. Besides three fund managers, the PFRDA has appointed National Securities Depository Limited to act as the Central Record Keeping Agency for the system for a fee of Rs 10 lakh per annum to the regulator. "NSDL is expected to start operations by June 1, 2008," he said.

About three lakh employees of the central government and 19 state governments have joined the NPS since January 2004.

"We expect one lakh employees to join NPS each year and an accretion of Rs 1,000 crore year - on - year or even more after implementation of the recommendation of the Sixth Pay Commission," said Swarup. The Subscribers will have to choose from two investment options - 100 per cent investment in government securities or investment pattern of non-government provident funds.

The first gives a lower fixed assured return while the later is expected to give a much higher return as up to 15 per cent can be invested in equities.

As the non-government pension funds are likely to allowed to invest up to 20 per cent in equities soon, the same will become applicable to NPS also.

SBI will charge 3 basis point while UTI AMC and LIC will charge 5 bps as fund management fees from subscribers of the new pension system. Fund managers have been appointed for three years and would be paying an annual fee to PFRDA.

NSDL will do recordkeeping, administration, customer service, issue unique Permanent Retirement Account Number (PRAN) to each subscriber and will act as an interface between PFRDA and other NPS intermediaries like pension funds, annuity service providers and Trustee Bank. NSDL is likely to create the requisite infrastructure by June next year.

NSDL will charge initially Rs 350, Rs 50 and Rs 10 as account maintenance charge, transaction charge and account opening charge respectively. The central government has decided to bear these charges for its employees.

Unlike the Employees Provident Fund (EPF), an account in NPS is portable if the subscriber changes jobs and can switch pension funds also.

Under the scheme, employee contributes 10 per cent of basic and DA with a matching contribution from government. Currently, the collections from NPS is utilised by central government and state governments to finance their deficits and give a fixed interest rate of 8 per cent per annum.