No pension fund has made investments in bonds rated below AA: Supratim Bandyopadhyay, PFRDA

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PFRDA Chairman, Supratim Bandyopadhyay spoke to ET Wealth on a range of issues facing investors in the NPS.

The NPS offers several benefits to investors. Yet, the voluntary segment accounts for less than 15% of the total AUM. Why are investors staying away?

Yes, the voluntary segment of NPS is still very small. A lot of people still do not realise the importance of retirement planning. They want to postpone the decision till they are in their late 40s. Data shows that the mortality rate in India is improving but morbidity is also growing. People are living longer but are afflicted by diseases in their old age. They need to save up enough so that their golden years are comfortable. Having said that, we are seeing a growing interest in the NPS among younger people. More than 62% of the investors in NPS are in the age group 26-45 years.

But other retirement products, such as endowment insurance policies, continue to attract investors of all age groups.

Endowment insurance policies are popular but in recent years there is a definite move towards pure protection term insurance. Also, insurance has tied agents that helps bring in customers. The NPS does not have that kind of distribution support. The move to enlist retirement advisers has not gained the desired traction.

A major concern of investors is the taxability of pension from annuity. Do you think this will change anytime soon?

We have been requesting for the tax exemption of annuity income for some years now. Even the insurance regulator Irdai wants annuity to be exempted from tax. If the Finance Ministry agrees and annuity becomes tax free, it will be a gamechanger for the pension sector in India.

In 2018, the PFRDA allowed pension funds to invest in A rated bonds. In the light of the recent turmoil, do you think this decision needs to be reviewed?
Most pension fund managers follow their own investment guidelines which are stricter than what PFRDA has laid down. No pension fund has made investments in bonds rated below AA, so there is adequate safety. Also, the guidelines say that bonds have to be rated by at least two rating agencies and should be listed.

PFRDA has offered 3-month moratorium to NCD payments. If funds were investing in NCDs of good companies, what is the need for the moratorium?
This is not a moratorium offered by PFRDA. RBI has permitted banks to grant moratorium of three months on payment of installments and subsequently Sebi has told rating agencies that any delay in interest or repayment on bonds or debentures due to Covid related issues should not be treated as a default. The pension fund managers will go by the ratings of the credit rating agencies and the valuation provided by the valuation agency.

The Rs 5,000 maximum pension under Atal Pension Yojana may amount to very little after 25-30 years. Why not roll out a premium version with a maximum pension of Rs 50,000?
The Atal Pension Yojana offers a guaranteed return of 8% during the accumulation stage and during the annuitisation stage. These rates are higher than the prevailing rates. We want to raise the pension amount to Rs 10,000. But this decision has to be taken by the government since they are guaranteeing the payment.

In the auto choice, the asset allocation is automatically changed every year. How does that help?

A large number of subscribers do not change their asset mix throughout the investing period. NPS is the only product which automatically rebalances the corpus every year if the investor has opted for the auto choice. So if you started off with 50% equity and due to a market rally it has gone up to 60%, the NPS will automatically reset it to 50% on your next birthday. This happens regularly and ensures that the risk profile of the investor is maintained.

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