The Economic Times (ET) reports that the Finance Ministry and board of regulators have given an in-principle nod to the proposal to allow the Pension Fund Regulatory and Development Authority (PFRDA) to become the single regulator for all pension products.
Once the PFRDA Act is amended, it could give the regulator powers over all pension products, and facilitate handing over of the management of the NPS trust to the government. The finance ministry might make an announcement to this effect in the upcoming budget.
The ET news report also mentions that the government is also considering doubling tax benefits currently available under the National Pension Scheme (NPS) to Rs 1 lakh under Section 80CCD (1b) and making the annuity income tax-free. Currently, the annuity received is taxable in the year of receipt.
Supratim Bandopadhyay, member-finance, PFRDA told the ET “Today, there is multiplicity of pension funds, EPFO (Employees’ Provident Fund Organisation) is also taken as a retirement corpus, we also have superannuation funds managed by insurance companies, mutual funds are also allowed to collect retirement corpus, so there is a lot of confusion and this needs to be sorted.”
He added “The finance minister and the PFRDA board have approved the suggestions and there is an in-principle approval to amend the PFRDA Act to allow certain changes. Now, the inter-ministerial consultation is ongoing; once that is complete through legal vetting, it (proposed amendment) will be placed before the Cabinet and we expect that it will be placed in the budget session.”
However, Mr Bandopadhyay admitted that there is still lack of clarity whether the government would want the PFRDA to handle the EPFO, which handles a corpus of more than Rs 14 lakh crore.
The ET reports states that the PFRDA has also suggested a systematic withdrawal plan (SWP) to be made available alongside the annuity plan. The SWP might allow withdrawal over a period at much higher rates. The regulator estimates that the returns under this could be as high at 10% over the 6.25% available under annuity plans. There is a possibility that the NPS trust could be made independent of the regulator.
Presently, under the NPS scheme, a person on maturity of the fund at the age of 60 would be able to withdraw up to 60% of the corpus without payment of tax. The balance 40% would have to be compulsorily used to buy an annuity plan.
Currently, pension funds including the EPFO, superannuation funds and the NPS trust together manage capital of Rs 25 lakh crore. Of this, the NPS trust, which is the responsibility of the pension regulator, handles Rs 4 lakh crore of pension money.
The PFRDA has also sought clarity over foreign investment regulations for the pension sector and clarity may emerge in the coming budget. Currently, the FDI limit in the pension sector is linked to insurance rules and any changes in the latter will automatically apply to these funds.
Mr Bandopadhyay said that they have sought clarity from the government over the calculation of 49% FDI because presently, only the foreign sponsors’ investment is counted as FDI but domestic companies too have foreign investments. He said “The pension regulator will need to factor in the overall foreign investment, direct and indirect, so the FDI calculation in the present circumstance could also go up.”