The supervisor and regulator for pensions in India, Pension Fund Regulatory and Development Authority (PFRDA), which operates the National Pension System (NPS), is preparing to launch a guaranteed return scheme, Minimum Assured Return Scheme (MARS), which will provide savers and people from the salaried class an option for their investments.
About Minimum Assured Return Scheme (MARS)
- This will be the first scheme from the pension regulator that will offer a guaranteed return to investors.
- However, only the floor is set in the proposed scheme, and the consultant is expected to work out the framework of MARS in the next couple of months.
- The PFRDA wants to launch the scheme before the end of the current calendar year.
What kind of returns will the scheme offer?
- The actual returns will depend on the market conditions. Any shortfall will be made good by the sponsor, and the surplus will be credited to the subscribers’ account.
- Two options are likely to be on offer.
- Under the fixed guarantee option, the guaranteed return is fixed along the accumulation phase.
- Under the floating guarantee option, the guaranteed rate of return is not fixed along the savings phase.
- The floating guarantee depends on the development of the 1-year interest rate until retirement.
- The current 1-year interest rate is assigned to each annual contribution made, and is valid until retirement so that, at each point of time, there is a different minimum return.
- This is similar to the ATP system in Denmark, where 80 per cent of contributions are guaranteed based on the rates the ATP can obtain in the market when contributions are paid, according to a PFRDA paper.
Will there be a lock-in?
- According to the current plan, lock-in may be applicable on each contribution, and will be applied based on the period since that contribution has been made. It may also consider multiple lock-in period options (or staggered guarantee periods) for flexibility.
- Withdrawals are likely to be directly linked to the lock-in period.
- The subscriber may have the option to withdraw or to stay invested after the lock-in period. However, there won’t be any guarantee applied on the investment after lock-in.
- Minimum and maximum monetary limits on contributions may be prescribed.
- The attraction for investors will be the minimum guaranteed return.
- Note: NPS is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.
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