PFRDA’s guaranteed return scheme

March 1, 2022

The Pension Fund Regulatory and Development Authority (PFRDA) is planning to launch a guaranteed return scheme called Minimum Assured Return Scheme (MARS). This scheme will be launched to provide people from salaried class an option for their investments.

What is the plan?

PFRDA has appointed EY Actuarial Services LLP as a consultant, in order to help in designing the proposed MARS under National Pension Scheme (NPS). It will be the first scheme from pension regulator, to offer a guaranteed return to investors. However, only the floor is set in proposed scheme. Consultant is likely to work out the framework within some months.

Returns to be offered by scheme

Actual returns offered by the scheme will depend on the market conditions. Any shortfall will be made good by sponsor, while the surplus will be credited to subscribers’ account. Two options are expected to be on offer:

Fixed Guarantee Option– Under it, guaranteed rate of return is fixed along the accumulation phase.
Floating Guarantee Option– Under it, guaranteed rate of return is not fixed along the savings phase. It depends on the development of 1-year interest rate until retirement. Current 1-year interest rate is assigned to each annual contribution made. It is valid until retirement. This option is similar to ATP system in Denmark, where 80 per cent of contributions are guaranteed on the basis of rates that ATP can obtain in market when contributions are paid.

Lock-in plan

As per the current plan, lock-in may be applicable on each contribution. It will be applied on the basis of period since that contribution has been made. It may also consider multiple lock-in period options for flexibility. Withdrawals are expected to be directly linked to lock-in period. Subscriber will have the option to stay invested or withdraw after lock-in period. However, there won’t be any guarantee applied on investment after lock-in.

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