The government staff enrolled in the National pension system (NPS) may soon get the freedom to opt for higher equity exposure and choose private fund managers to maximise their returns from the long-term investment.
The Pension Fund Regulatory and Development Authority (PFRDA) is awaiting formal communication from the finance ministry to relax the investment norms for government staff, who are currently allowed to invest only in a specified NPS scheme that can invest up to 15% in equities. The plan is to raise the equity investment limit to 50%, as in the case of private sector employees.
Also, government staff has to mandatorily choose between the three pension fund managers (PFMs) promoted by PSUs: LIC, SBI and UTI AMC. PFRDA plans to allow government staff to choose from any of the three PSUs and five private firms.
A relaxation in the investment rule can prop up the equities market as government staff make up the bulk of the R35,000-crore pension corpus under NPS. It can also help government employees reap the benefits of a buoyant equities market to increase their returns.
"We have already taken up with the government that their employees should get the same choice as private sector employees in terms of investment. The finance ministry has agreed and we are waiting for a formal communication before amending the rules," PFRDA chairman Yogesh Agarwal told FE.
“The FM has also agreed that government staff be given the flexibility to choose their fund managers from both PSU and private players,” he said.
NPS has been subscribed by 12 lakh central government employees, 18 lakh state government staff and over 20 lakh individual investors.
At present, employees in the private sector can choose any portfolio mix, ranging from up to 50% equity exposure and the remaining in debt to the safest option of 100% in debt. For investors who are unable to make a choice, a default “auto” choice scheme divides the portfolio into 50% equity, 20% in government debt and 30% in corporate debt until the age of 35 years and the equity exposure subsequently reduces with increase in age.
Agarwal expects exponential growth in the pension sector now that Parliament has passed the PFRDA Bill, which gives the regulator a statutory status and increases the confidence of investors. The pension Bill incorporated a provision for an assured return scheme. Agarwal said the NPS already offers such a choice where the entire money is invested in G-Secs and state government securities.
Since the start of NPS in 2004, the subscriber base has increased to 52.8 lakh as 26 states and over 800 corporates joined the scheme. The NPS corpus has grown from just R2,277 crore in 2008-09 to R34,965 crore by the end of August 2013.