Breaking away from the traditional pension fund management system for government employees, the Pension Fund Regulatory and Development Authority (PFRDA) is planning to provide them with a variety of investment options where they can park their funds, including a choice to deploy 50 per cent of their contribution into equities.
This will be a marked change from the current default scheme that allows up to 15 per cent of contribution to be invested into equities.
Whole-time member (Finance) of PFRDA, RV Verma, said that the authority is looking to migrate to a situation where the subscriber (a government employee) of the National Pension System (NPS) will be able to choose the investment options.
“We have taken the proposal to our board and its views are being reviewed. The idea is that if a subscriber can make a decision then why not give him/her the option. Those who can take a decision on their investments and can read the markets should not be deprived of the option of getting a better yield on their investments,” said Verma.
Though the PFRDA has already started work on this and it may take some time, Verma said that it also has to be discussed with the government. “Though the government is there to take decision on their behalf, if anyone wants to take decision on their own or they can be enabled to take the decision then why not,” emphasised Verma.
As of now, there is only one default scheme for government employees and the fund is allocated to SBI Pension Funds, UTI Retirement Solutions and LIC Pension Fund in a predefined proportion. Also, the money has to be deployed in a set pattern — up to 55 per cent in government securities, up to 40 per cent in debt securities, up to15 per cent in equities and 5 per cent in money market instruments.
However, ‘all citizens model’ of the NPS allows investors to pick from one of the three options — predominantly equities (E), fixed income instruments other than government securities (C) and into government securities (G). With PFRDA looking to provide options, government employees will be able to invest into E asset class where up to 50 per cent of their contribution can go into equities.
While the total AUM of the contribution from all government employees (Central and state) stood at Rs 69,476 crore as of January 2015, the annual additional contribution amounts to around Rs 20,000 crore (around Rs 7,000 crore from the Central government and Rs 13,000 crore from state governments). Once the move turns into a reality, it will be a big booster to the equities market as close to Rs 20,000 crore would flow in as investments every year.
EPFO trustees to decide on 30% in equities
The Central Board of Trustees will on Wednesday take up a proposal to invest up to 30 per cent of the Rs 6 lakh crore corpus of the EPFO in equities. The finance ministry had on March 2 notified a new investment pattern for non-government provident funds that comes into effect from April 1. The CBT, which is the apex decision making body of the EPFO, is also expected to question the labour ministry on Budget proposals including making PF contribution optional for workers receiving salary below a threshold. Sources said that the announcements were made without any discussions with the trustees. (By Surabhi)
