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Wednesday, October 22, 2014

Bigger equity play likely for National Pension System subscribers

NEW DELHI: The pension regulator may allow a greater portion of the retirement savings of government employees parked in National Pension System (NPS) to be invested in equities if the government proposes to do so. This could over the year allow movement of thousands of crores of long-term retirement savings into equities, something that the government has been unable to persuade the Employees Provident Fund Organisation to do.
"The NPS structure offers an inbuilt flexibility to subscribers to choose the equity or debt option. We want that benefit to accrue to all subscribers," said a senior PFRDA official. Nearly 37 lakh central and state government employees are at present subscribers of NPS. The total asset under management of such subscribers is Rs 57,908 crore.
Under the NPS, there are different plans that the subscribers can opt for, each providing varying degrees of exposure to equities, government bonds and private bonds. This choice is, however, not available to government employees. At present, for government employees, there's only one default Tier I structure.
Under this structure, the entire contribution of government employees is split among three state-run pension fund managers, who invest funds in the proportion of up to 55 per cent in government securities, up to 40 per cent in debt ecurities, up to 15 per cent in equity and up to 5 per cent in money market instruments.
"It is up to the state or central government to take a call. If only auto choice is made available to such government subscribers, their investment in equity option will be done according to the life cycle thus mitigating any risks," the above quoted official added. The state and central government employees constitute almost half the NPS subscriber base. The total pension corpus invested in equity portion is only Rs 5,000 crore. The scheme has 75 lakh subscribers and a corpus of Rs 63,511 crore till October 2014.
"The equity exposure of around 15 per cent is from the corporate sector, and that from the government subscribers is around 8.64 per cent," said the above quoted PFRDA official. Under the NPS corporate model, the corporate or the subscriber is given two options — active or auto choice. In active choice, a subscriber can invest up to 50 per cent in equities, while in auto choice, the investments will be made in a life-cycle fund.
"For subscribes' up to 35 years, the equity portion is as high as 50 per cent, and the exposure towards equity in the last few years is brought down to 10 per cent and below," the official explained. Experts believe that the government has robbed its employees by not giving such an option as most of them missed the Sensex rally during 2004-08.

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