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The Pension Fund Regulatory and Development Authority (PFRDA) is suggesting that the money in the government’s National Pension System (NPS) be also entrusted to private fund managers.
Sources close to the matter indicated it has written a letter in this regard to the government. The total of assets under management (AUM) under NPS is Rs 88,000 crore, of which the funds from central and state government employees are Rs 79,000 crore.
By present PFRDA regulations, only public sector undertaking (PSU) fund managers are allowed to manage the money of government employees. SBI Pension Funds, UTI Retirement Solutions and LIC Pension Funds handle these. Fund managers from the private sector are allowed to manage those of corporate employees and the unorganised sector. The pensions funds of HDFC, Kotak Mahindra, ICICI Prudential, Reliance Capital and Birla Sunlife Insurance managed a total of Rs 7,000 crore at the end of June.
The regulator thinks that because of the smaller AUM, private sector fund managers get less room to deploy the money. “They need to show a good rate of return, which is difficult to manage with small funds, as it gives them little flexibility,” said an official.
If these private fund managers get government funds, too, they would be incentivised to be committed to the sector and even government pension funds would garner better returns, another official felt.
While this would be good news for private fund managers, it would have an impact on the assets of PSU fund managers. As of end-June, the total being managed by SBI Pension Fund, also the default fund manager for NPS, was Rs 34,085 crore, of which Rs 27,945 crore was from the government sector. UTI Pension Fund handles a little less than Rs 23,000 crore and LIC Pension Fund about Rs 22,000 crore.
“We have not received any communication so far,” said SBI Pension Fund on PFRDA's reported move.
Some others say employees should be able to chose their fund manager. “They would make the decision based on the returns they are getting,” said one manager.
From data published on the PFRDA website, the average annual return offered by NPS over a five-year period is 11 per cent for both equity and corporate debt funds. In spite of a good return and being a defined benefit scheme, NPS has lagged other long-term investment products such as the provident fund, due to lack of the Exempt–Exempt –Exempt status. Meaning, your investment is tax-deductible, as is the return on the accumulation, beside being also tax-free at the time of withdrawal.
NPS, however, is Exempt-Exempt-Taxed. The corpus from an NPS account, once received, is taxable under the appropriate bracket. PFRDA has been seeking the EEE status, to bring it at par with other such instruments.
Last month, PFRDA revamped the investment guidelines for government funds by allowing these to get into real estate investment trusts and infrastructure investment trusts, beside reducing their exposure limits to government bonds.
Sources close to the matter indicated it has written a letter in this regard to the government. The total of assets under management (AUM) under NPS is Rs 88,000 crore, of which the funds from central and state government employees are Rs 79,000 crore.
By present PFRDA regulations, only public sector undertaking (PSU) fund managers are allowed to manage the money of government employees. SBI Pension Funds, UTI Retirement Solutions and LIC Pension Funds handle these. Fund managers from the private sector are allowed to manage those of corporate employees and the unorganised sector. The pensions funds of HDFC, Kotak Mahindra, ICICI Prudential, Reliance Capital and Birla Sunlife Insurance managed a total of Rs 7,000 crore at the end of June.
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The regulator thinks that because of the smaller AUM, private sector fund managers get less room to deploy the money. “They need to show a good rate of return, which is difficult to manage with small funds, as it gives them little flexibility,” said an official.
If these private fund managers get government funds, too, they would be incentivised to be committed to the sector and even government pension funds would garner better returns, another official felt.
While this would be good news for private fund managers, it would have an impact on the assets of PSU fund managers. As of end-June, the total being managed by SBI Pension Fund, also the default fund manager for NPS, was Rs 34,085 crore, of which Rs 27,945 crore was from the government sector. UTI Pension Fund handles a little less than Rs 23,000 crore and LIC Pension Fund about Rs 22,000 crore.
“We have not received any communication so far,” said SBI Pension Fund on PFRDA's reported move.
Some others say employees should be able to chose their fund manager. “They would make the decision based on the returns they are getting,” said one manager.
From data published on the PFRDA website, the average annual return offered by NPS over a five-year period is 11 per cent for both equity and corporate debt funds. In spite of a good return and being a defined benefit scheme, NPS has lagged other long-term investment products such as the provident fund, due to lack of the Exempt–Exempt –Exempt status. Meaning, your investment is tax-deductible, as is the return on the accumulation, beside being also tax-free at the time of withdrawal.
NPS, however, is Exempt-Exempt-Taxed. The corpus from an NPS account, once received, is taxable under the appropriate bracket. PFRDA has been seeking the EEE status, to bring it at par with other such instruments.
Last month, PFRDA revamped the investment guidelines for government funds by allowing these to get into real estate investment trusts and infrastructure investment trusts, beside reducing their exposure limits to government bonds.
