The Pension Fund Regulatory and Development Authority (PFRDA ) is expected to launch its first minimum assured return scheme under the National Pension System (NPS ) for non-government subscribers in May-June 2023, the insurance regulator has said.

The fund is expected to give 4-5 per cent guaranteed income on the pension corpus for 10 years, besides market linked return.

The minimum annual contribution for the scheme is Rs 5,000 and the upper age limit for the plan is below 50 years.

The scheme would be initially open only for non-government NPS subscribers. However, the central and state government employees can subscribe it only when the governments notify the product as an option.

Financial Express cites PFRDA chairman Supratim Bandyopadhyay that the scheme would give 4-5 per cent returns and all market-linked gains would be transferred to the subscriber . He stressed that there is no product like this currently in India or internationally.

Scheme Details

Higher Expense Ratio:

The expense ratio (fund management fee) would be higher than other NPS schemes. PFRDA said the expense ratio, at 25 basis points, is higher due to the scheme’s guaranteed returns despite market risks.

The expense ratio in normal NPS schemes is capped at maximum 9 basis points. However, insurance companies charge up to 150 basis points for managing similar guarantee income plans.

Mandated Solvency Ratio

The fund managers will have a 1.5 solvency ratio, derived by dividing the assets with liabilities. The 1.5 ratio means the fund managers must infuse additional capital to run the scheme. However, for market-linked return NPS schemes, no such solvency ratio is mandated.

Flexible Investment Ratio

The fund managers will have the flexibility to determine investment ratio in government securities , corporate bonds, and equities while running the scheme. It is expected to help generate higher returns over and above the guaranteed rate.

Scheme To Be Modified Later

PFRDA said the scheme would be modified depending on the market response. After completing 10 years in the fund, subscribers can reinvest in the scheme at the then prevailing minimum return guarantee rate. They could also invest in the normal non-guaranteed NPS schemes.