PFRDA Amends Equity Allocation Rule for Level I and Level II Accounts under NPS

The Pension Funds Regulatory and Development Authority (PFRDA) has revised the capital attribution standards for National Pension System (NPS) Tier 1 and Tier II accounts.

  • The PFRDA has issued the new regulations pursuant to the powers conferred by sub-paragraph (b) of subsection (2) of section 14 read with section 23 of the PFRDA Act 2013 and sub-regulation (1) of the Regulation 14 of the PFRDA (Pension Fund) Regulations, 2015, as amended from time to time.

PFRDA New Regulations

I.The new regulations stipulate that subscribers can allocate up to 75% of their funds to active choice (E) shares in a Tier-I account from the age of 51 without any reduction requirement.

ii.In addition, PFRDA has decided to allocate 100% of subscribers’ contributions to asset class E (equities) in Level II accounts (optional accounts) under active choice without any reduction conditions.

Key points:

I.Under the NPS-All Citizen model, NPS subscribers currently have the option of selecting one of the registered pension funds and actively allocating their contributions across four asset classes: equities (E), corporate bonds (C), Government Securities (G), and Alternative Assets (A) with “Active Choice” option.

  • Individuals who voluntarily subscribe to the NPS are referred to as All Area Citizens.

Maximum allocations to different asset classes

Asset class Maximum limit
Asset class G (government securities) 100%
Asset class C (corporate bonds) 100%
Asset class E (Equity) 75%
Asset class A (Alternative assets) 5%

ii.The 75% cap on asset class E (Equity) is however reduced by 2.5% per year and reallocated to government securities as soon as the subscriber reaches the age of 51.

Maximum equity threshold based on age

Age 50 51 52 53 54 55 56 57 58 59 60 and over
Maximum fairness 75 72.5 70 67.5 65 62.5 60 57.5 55 52.5 50

List of restrictions on asset class exposure that will now be imposed on all Tier II underwriters and Tier I private sector underwriters

Level -I
Asset class Maximum limit
Asset class G (government securities) 100%
Asset class C (corporate bonds) 100%
Asset class E (Equity) 75%
Asset class A (Alternative assets) 5%
Level II
Asset class Maximum limit
Asset class G (government securities) 100%
Asset class C (corporate bonds) 100%
Asset class E (Equity) 100%
Asset class A (Alternative assets) 5%

Click here to read the official notification

To note: The PFRDA has also issued guidelines for dealing with the NPS corpus of deceased subscribers.

National Pension System (NPS)

I.The NPS is a voluntary retirement savings scheme designed to allow subscribers to make defined contributions to planned savings, securing the future in the form of a pension.

  • Under the NPS, employers are allowed to contribute to the social security/welfare benefits of their employees.

ii.The NPS became mandatory for all central government recruits on 1 January 2004 (excluding the armed forces).

  • It replaced the old defined benefit pension plan and has since been adopted by almost all state governments for their employees.
  • In 2009, it was made available to all sections.

The NPS account has two different account types: Level I and Level II.

I.A Level I is the Individual pension accountwho is the default pension account and receives all tax incentives under the Income Tax Act.

ii.A Level II account is a Optional investment account available to subscribers who have an active Tier I account.

  • There are no withdrawal limits and tax advantages with this account. Level II accounts are not retirement accounts.

Recent Related News:

In July 2022, Bank of India (THIS) became the first bank to launch a unified payment interface (IPU)-digital portal enabled for registration in the national pension system (NPS) in collaboration with K-fintech. The digital approach involves scanning QR codes, Aadhar verification with Digilocker, and payment via UPI.

About the Pension Funds Regulatory and Development Authority (PFRDA):

President – Supratim Bandyopadhyay
Establishment – 2003
Headquarter – New Delhi, Delhi

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