The board of Pension Fund Regulatory and Development Authority is expected to give approval to a minimum assured pension return scheme (MARS) by the December end in a bid to encourage enrolment in pension schemes.

Senthil Gunasekaran, chief business development officer of KFintech, a CRA (central recordkeeping agency) under the NPS system, gave an early look as to what is being planned and how this scheme could be different from the existing NPS schemes and annuity policies.

“The scheme is expected to offer a floating rate of return that would reset annually, based on 10-year government security rates. Investors would have to pay a higher premium for assured returns,” Gunasekaran said adding that the scheme would have a lock-in period of 10 years.

While the scheme is still awaiting approval and rates are being worked out, Gunasekaran said that the key ingredients that are under consideration are the scheme should have a low-cost structure to minimise administrative and management expenses and a flexible payout option that allows the subscribers to choose the frequency and amount of pensions as per their needs and preference.

Currently, NPS offers various models for citizens, government sector and corporates with different choices for asset allocation. For instance, under the all-citizen model, a subscriber can opt for allocation of up to 75 per cent in equity with the remaining in corporate bonds, government securities and alternate assets such as REITs and INVITs. Under the government sector model, up to 15 per cent can be invested in equities and related instruments.

“MARS would provide pension security and risk protection to investors who are looking for low-risk products while NPS is a market-linked product that exposes investors to higher risk and volatility,” said Gunasekaran.

PFRDA currently has a guaranteed pension scheme in the form of Atal Pension Yojana but the proposed scheme is unlikely to have the limitations of APY. “The scheme is expected to be open to all citizens of India between 18 and 40 years of age. On the other hand, APY is targeted at the unorganised sector workers who are not covered by any other social security scheme,” he said.

Annuity policies also provide assured returns but a key difference is expected in the proposed scheme. “Annuity policies usually offer a fixed rate of return that is determined at the time of purchase while MARS is expected to provide a floating rate of return,” he added.

Gunasekaran said the broader segment of the population who previously had reservations about investing in pension schemes could start looking at NPS as a beneficial tool.

“The potential impact of the new pension scheme could be an increase in enrolment and assets under management. Also, the scheme’s assurance of minimum returns can provide retirees with a sense of financial security, ensuring steady income during their retirement years,” he said.

As of April 30, 2023, NPS had a subscriber base of 1.73 crore with assets under management of Rs 8.98 lakh crore.