![The NPS plans are now market-determined, which means that no returns or benefits are guaranteed.](https://kjcdn.gumlet.io/media/82745/pension-scheme-345y.jpg)
According to its chairman Supratim Bandyopadhyay, the Pension Fund Regulatory and Development Authority (PFRDA) will launch the first minimum assured return scheme (MARS) under the National Pension System (NPS) by May or June of next year, guaranteeing 4-5% annual returns on the pension corpus for ten years.
Given that the retirement age is 60, the minimum yearly commitment for MARS would be Rs 5,000, and the maximum age for subscribers would be under 50. stated Bandyopadhyay.
The NPS schemes are now market-determined, which means that no returns or benefits are guaranteed. Of course, the Atal Pension Yojana, which is supported by the government, ensures that participants will get a minimum monthly pension of Rs 1,000–5,000 based on their contributions.
Nearly half of the market-linked NPS schemes' real returns would be guaranteed by MARS, and it would also have a higher fund management charge. The fund management fee might be about 25 basis points (bps), which is more than the limit of 9 bps under previous NPS schemes but less than the 150 bps insurance firms charge for their insurance products due to the risks associated with guaranteeing returns.
For MARS, fund managers would need to inject extra capital since their solvency ratio (assets/liabilities) would be 1.5. In accordance with market-return-based NPS schemes, no solvency ratio is required.
In order to make such a product appealing, the PFRDA will allow fund managers the ability to invest a larger percentage of the MARS corpus in government assets, corporate bonds, and stocks than the guaranteed rate.
"There is no product like this elsewhere, not even in India. All market gains will be distributed to subscribers, and we will guarantee a minimum return of 4% to 5%,” according to Bandyopadhyay.
The central government and state government employees, who make up the majority of the subscribers' AUM corpus (about 80% of Rs 8.5 trillion as of December 17, 2022) have received average returns on the NPS corpus of around 10% over the previous 13 years.
Currently, subscribers who contribute more than the 1,50,000 permitted under Section 80C of the Income Tax Act are entitled to an annual deduction of Rs 50,000.
At the time of leaving the NPS, a subscriber receives a lump sum payment of 60% tax-free money, and the remaining 40% must be used to purchase annuities for ongoing income up until the subscriber and his or her spouse pass away. After that, the principal amount is returned to the nominees. The same advantages will apply to MARS.
More than nine years after the PFRDA Act of 2013, the regulator is introducing a MARS product, which will be released soon. Since there was no comparable product available globally, it took some time.
The MARS system "may be changed at a later point, depending on the market response," Bandyopadhyay added.
After 10 years, the corpus might be reinvested in MARS once again at the current minimum return guarantee rate, or the subscribers could choose to invest it in regular NPS schemes without a guarantee.
The product will first be available for non-government subscribers to subscribe to, and once the Center and States advise their staff that the product is an option for their employees, the product will also be made available to government employees.
The PFRDA has already come under fire from India's Comptroller and Auditor General for failing to implement a MARS as per the PFRDA Act's requirements. According to the Act, the subscriber has the opportunity to invest his money in MARS-providing schemes that the Authority may notify.