23 November 2015 07:19:26 IST

NPS: Central govt staff may get more investment flexibility

May be allowed to invest up to 50% of pension contribution in equities

Nearly 16 lakh Central government employees may soon have the flexibility to choose their asset allocation under the National Pension System (NPS) and invest as much as 50 per cent of their retirement contributions in equities.

The Pension Fund Regulatory and Development Authority (PFRDA) is in talks with the Finance Ministry to give Central government staff this option under the NPS.

“The proposal has been approved by our board and we are now discussing it with the Department of Financial Services. The objective is to harmonise the investment options between the private sector and government NPS,” said RV Verma, whole-time Member (Finance), PFRDA.

However, the transition will be gradual, Verma told BusinessLine , adding that backend infrastructure in terms of record keeping of pension data and fund managers would also have to be strengthened.

“Eventually, each of the employees would be able to decide on their own investment portfolio. But the default option would also be available to them, just as in the case of private sector NPS,” he said.

All those who became Central government employees from January 1, 2004 were mandated to join the NPS, which is a defined contribution pension scheme. Ten per cent of a worker’s basic salary, including daily allowance, is deducted every month as retirement contribution.

However, unlike private subscribers of the NPS, who have flexibility in deciding their asset allocation, contributions by government workers are invested on a lumpsum basis based on a default scheme.

Current structure At present, fund managers for the Central government NPS can allocate up to 15 per cent of the funds in equities, up to 50 per cent in government securities, a maximum of 45 per cent in corporate bonds and a maximum of 5 per cent each in short-term debt instruments and related investments.

In contrast, the investment pattern under NPS for private citizens allows for up to 50 per cent exposure to equities.

Harmonisation of the investment guidelines for private and government sector NPS was also one of the key recommendations of the GN Bajpai committee, which submitted its report on investment guidelines for the schemes to the pension regulator in April.

Once the PFRDA gets the go-ahead for the move, it will also appoint fresh pension fund managers for the Central government NPS, Verma said.

“The term of the current pension fund managers has been extended and we have to invite applications for the position again. Pension fund managers will also be responsible for investor education and awareness if the Finance Ministry approves the proposal,” he said.

Fund managers At present, three entities — SBI Pension Funds Private Ltd, UTI Retirement Solutions Ltd and LIC Pension Fund Ltd — are the fund managers for the NPS for Central government employees.

Launched over a decade ago in 2004, the NPS for Central government staff has around 15.80 lakh subscribers and ₹43,244 crore of assets under management.