Discuss with IRDAI for options whose returns are linked to the pace of price increases: Head of PFRDA
Savers concerned about the deleterious impact of inflation on their fixed retirement income may soon be able to purchase indexed annuity products with returns tied to the pace of rising prices, the head of the company said on Tuesday. ‘Authority for the Regulation and Development of Pension Funds (PFRDA).
The pension regulator, which oversees the National Pension System (NPS) with a retirement savings of 6.76 lakh crore, is working with the Insurance Regulatory Development Authority of India (IRDAI) to provide such an option to its over 4.7 crore members which include government and private sector employees as well as self-employed and informal sector workers.
âFor many people, once annuity income begins, it remains constant throughout their life,â said PFRDA chairman Supratim Bandopadhyay. âWhile there is a product that offers a simple 3% annual increase in annuity income, it will not take on the risk of inflation,â he added. âWe have discussed with the insurance regulator … and the annuity providers, if they can think of such a variable annuity that gives some cushion against rising inflation,â he said in response. to a question about inflation reducing the value of annuity income taxed by the NPS.
“Report submitted by the panel”
âThey had a working committee on the matter and a report was also submitted. We are in talks with IRDA to ensure that such products can be launched as soon as possible, âhe said during a webinar hosted by Assocham on the benefits of NPS for businesses.
Mr Bandopadhyay pointed out the low returns offered in annuity products where NPS members are required to put 40% of their retirement corpus in return for monthly income until their death.
“Suppose someone reaches 2.1 lakh in retirement, he will get an annuity of 84,000 yen, which today will give an income of 400 or 450 yen per month, which is ridiculous … Since the annuities are taxable, deducting tax and taking inflation into account means annuities produce negative returns, âhe pointed out earlier this year.
In addition to promoting an inflation-indexed annuity product, the PFRDA is pursuing legislative changes to drop the requirement that 40% of NPS accumulations must be paid out as an annuity upon retirement.