The Pension Fund Regulatory and Development Authority (PFRDA) has chosen E&Y Actuarial Services LLP for designing a new scheme under the New Pension Scheme (NPS). The sector regulator is probably going to permit minimum assured-return products in August.
The Comptroller and Auditor General of India (CAG) had condemned PFRDA for not introducing products that comply with the PFRDA Act. Previously, the PFRDA chairman mentioned that such schemes in mutual funds and insurance had not performed well.
Guaranteed products within the insurance industry were discontinued as providing a guarantee for a long duration may not be in the best interests of an organisation. Securities and Exchange Board of India (SEBI) also does not motivate any guaranteed product. As soon as a guarantee was provided, capital adequacy needs concerning fund managers went up.
The moment a guarantee is rendered, the markets decline; thus, fund managers will need to bring in more capital. Hence, actuarial inputs are needed. There will be different charge structures, not just capital needs, and there should be a separate guarantee fee. An ideal guarantee fee needs to be determined.
In comparison to other schemes, NPS has earned higher returns. For example, central government employees have earned returns ranging between 9.68% and 9.93% since its inception. State government employees have earned returns of 9.61% to -9.69%. These returns are higher in comparison to 8.5% returns earned via the Employees’ Provident Fund (EPF) for 2020-21. Nevertheless, EPF withdrawals are tax-exempt, but NPS withdrawals are partly tax-free.
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