PFRDA Develops Advanced Post-Retirement Products to Surpass Conventional Annuities
Mumbai: The Pension Fund Regulatory and Development Authority (PFRDA) is actively designing innovative post-retirement income products intended to outperform traditional annuities while sustaining the double-digit accumulation returns achieved under the National Pension System (NPS). Chairman Sivasubramanian Ramann made this announcement during the PFRDA Retire Smart India event in association with TOI, emphasizing that this initiative represents more than minor adjustments.
Addressing Core Challenges and Expanding Reach
The primary challenge for PFRDA is to establish a pension account in every Indian's hand, Ramann stated, as the regulator intensifies efforts to boost corporate adoption. Current regulations mandate that 20% of the pension corpus must be used to purchase insurer annuities, which have frequently faced criticism for offering modest and inflexible payouts. The regulator is now evaluating alternative solutions to address these limitations.
Ramann explained, "We have to create a product which goes beyond what we call the accumulation phase," indicating a shift toward fixed-period, structured payouts instead of life-only income streams. This approach aims to provide greater flexibility and improved financial outcomes for retirees.
Introducing the Minimum Assured Return Scheme
The proposed Minimum Assured Return Scheme offers predictable, risk-averse returns designed to protect investors. Under this framework, sponsors would cover any shortfalls, while subscribers would share in surpluses. Higher fees and defined lock-in periods are expected to support long-term sustainability, creating a capital-protected retirement option suitable for both new and existing investors.
To broaden accessibility, PFRDA is adopting a digital-first strategy with low-friction onboarding through UPI applications. This initiative specifically targets informal and self-employed workers, who have traditionally been underserved by formal pension systems.
Strategic Partnerships and Performance Metrics
The regulator is forming platform partnerships with food delivery, ride-hailing, and home services companies to enable small, regular contributions for long-term savings by workers "we typically see at our doorstep." This collaborative approach aims to integrate pension savings into the daily financial activities of gig economy participants.
Regarding performance, even conservative NPS options have delivered approximately 9.3% annual returns over the past decade, while other categories have posted double-digit gains. An expert committee is currently developing a future asset-allocation roadmap that includes potential exposure to new asset classes over time.
Enhancing Succession Planning and Tax Efficiency
Succession planning mechanisms are being strengthened, with recordkeeping agencies set to enable seamless nominee transfers. Ramann clarified the tax treatment, stating, "By some unfortunate circumstance, if you do not survive in this world up to 85, you are very well placed within NPS to transfer those assets from your account to your successor's account." Such transfers avoid capital gains taxation because "NPS is not a capital asset, it is income."
Exploring New Asset Classes and Healthcare Integration
Speaking to media representatives, Ramann revealed that to further enhance returns, the regulator is examining the possibility of allowing new asset classes and even considering participation in project loans. In a separate development, PFRDA launched the NPS Swasthya Pension Scheme in January as a pilot project to integrate pension savings with healthcare needs. This innovative scheme enables subscribers to save for medical emergencies while reducing insurance costs by opting for only a top-up cover over the Swasthya corpus.
Focus on Private Sector and Feature Enhancements
Ramann noted that PFRDA's focus has pivoted toward private-sector employees, self-employed individuals, and informal workers, while simultaneously easing features for existing subscribers. Recent modifications to government pension rules now allow employees to opt for higher equity exposure under the auto choice option.
Voluntary subscribers benefit from a reduced mandatory annuity purchase requirement of 20%, down from 40% previously. The system now recognizes 15 years as "long-term savings," permits participation until age 85, and introduces a partial-withdrawal window to provide greater liquidity options for subscribers.
