For Tier 1 and Tier II National Pension System (NPS) accounts, the Pension Fund Regulatory and Development Authority (PFRDA) has modified the equity allocation standards. According to the new regulation, subscribers can allocate up to 75% of their funds to equity (E) under active choice in a Tier-I account without any tapering requirements once they turn 51 years of age. The option to allocate 100% of the subscriber’s contribution to Asset Class E (Equity) in Tier-II accounts under active choice is permitted by the statutory regulatory body without any restrictions beginning at age 51 years of age.
NPS subscribers currently have the option, under the NPS-All Citizen Model, to choose any one of the registered Pension Funds and actively allocate their contributions across four asset classes: equity (E), corporate bonds (C), government securities (G), and alternate assets (A) with “Active Choice” option. The following are the maximum allocations to different asset classes:
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However, when a subscriber reaches the age of 51, the 75% cap on asset class E is lowered by 2.5% annually and reallocated to government securities. The following matrix serves as the basis for the age-based maximum equity threshold:
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“In partial modification to the above-mentioned circular, it has been decided by the Authority to allow option to allocate 75% of subscriber’s contribution in Asset Class E (Equity) in Tier-I under active choice without any conditions of tapering from the age of 51 years. Further, it has been decided to allow option to allocate 100% of subscriber’s contribution in Asset Class E (Equity) in Tier-II (optional account) under active choice without any conditions of tapering,” PFRDA said in a circular dated October 20, 2022.
The restrictions on asset class exposure that will now be imposed on Tier I subscribers in the private sector and on all Tier II subscribers are listed below:
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“Pension funds have prepared risk profiling of the respective schemes under different asset classes to disclose the level of inherent risks involved. Before choosing the investment scheme/asset class, subscribers are advised to independently evaluate the performance of asset class and the risks involved and choose the investment option according to the risk profile of the Scheme. The risk profiling of the schemes is available on the websites of respective Pension Funds and website of NPS Trust,” the regulator said.
The Pension Fund Regulatory and Development Authority (PFRDA) has also released guidelines on how to handle deceased subscribers’ NPS corpus after it has been discovered that in some cases, subscribers had tragically passed away after receiving a lump sum but before annuities were issued, and the funds allocated for annuities were in the CRA System.
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