PremiumNEW DELHI: Pension Fund Regulatory and Development Authority (PFRDA) has issued the request for proposal (RFP) for the appointment of a consultant to help design a Minimum Assured Return Scheme (MARS) under the National Pension System (NPS).
The central government had introduced NPS mandatorily for its new employees from 1 January 2004, and subsequently, almost all the state governments have adopted NPS for their employees. NPS is also offered voluntarily to citizens of India under the Unorganized Sector (UoS) Model, Corporate Model and Non-Resident Indian (NRI)/Overseas Citizen of India (OCI) Model.
According to the PFRDA RFP draft, the appointment of a consultant to design a scheme with guaranteed returns under NPS should not create a principal-agent relationship between PFRDA and the service provider.
Consultant's scope of work
PFRDA Act mandates that the subscribers under NPS choose a scheme that provides minimum assured returns. Such a scheme would have to be offered by the Pension Funds registered with the regulator.
Thus, the scope of work for the consultant would be to formulate the minimum assured return scheme to the existing and prospective subscribers by pension funds.
The consultant will have to work on a certain parameter. For instance, a guarantee would be capital plus additional benefits or an interest rate guarantee. It would apply to each contribution individually. Besides, the funds received through the switch from other schemes are to be considered as fresh contributions.
Further, the guarantee may be applicable only to future contributions (prospectively). All contributions will be eligible for the guarantee subject to certain monetary limits (with periodicity).
PFRDA's RFP stated that combinations of fixed or floating rates can be worked out for MARS and both the options under this parameter may be kept open for evaluations.
Lock-in would be applicable on each contribution and applied based on the period since that contribution. For providing flexibility, multiple lock-in period options (or staggered guarantee periods) may be considered and for each lock-in period, the guarantee offered would be different. However, such options/staggering will not be more than 2-3.
Withdrawals would 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. To avail of further guarantee after the expiry of the lock-in period, subscribers will have to again opt for fresh lock-in.
The regulator said that minimum and maximum monetary limits on contributions that subscribers can make have to be prescribed. Also, the contributions may be made flexible within the prescribed limits.
Fees and pricing: Considering the marked-to-market valuation of scheme assets under MARS, it may also be prudent to allow the Pension Funds to charge their fees as a percentage of the corpus managed by them. PFRDA RFP further stated that Pension Funds' fees or pricing of guarantee have to be charged to subscribers (viz. range with minimum and maximum limit, upper ceiling, floor and cap).
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