Govt employees might get to choose fund manager

Government employees might get to choose their fund managers and investment mix under the National Pension System (NPS), if the Pension Fund Regulatory & Development Authority (PFRDA) has its way.

At present, NPS subscribers from the non-government sector have the flexibility to choose their fund managers and also allocation of assets among equity, corporate debt and government debt, choices not available to government employees.

PFRDA Chairman Yogesh Agarwal told Business Standard: "I have written to the government saying there is no justification for the government to prescribe the investment pattern and choice of pension fund manager. Central and state government employees should be given the same choices as are available to the private sector subscribers."

Non-government sector subscribers are also allowed to change their allocation pattern, as well as the fund manager once every year without incurring any extra cost. This could be extended to government sector employees, too, to give them a wider choice, Agarwal added.

"You should also have the choice to change it once a year. The whole bedrock of NPS is that once the government has given matching contribution every month, its responsibility finishes. This is going to be a big game changer. I'm waiting for the government to give me a go-ahead shortly."

Once this choice is given to government employees, they can switch to a pension fund manager, offering better returns. They will also be able to invest in high-risk high-return plans, where up to 50 per cent can be invested in equities. Recently, PFRDA had barred fund managers from investing in index funds of mutual funds so that they start investing in equities directly.

Those who do not have the required knowledge to manage their NPS investments can go for the default option. In this option, at the lowest age of entry (18 years), the auto choice will entail investment of 50 per cent of pension wealth in high -risk high-return category, 30 per cent in medium-risk medium-return category and 20 per cent in low-risk, low-return category.

These ratios of investment remain fixed for all contributions until the participant reaches the age of 36. Thereafter, the weight in high-and medium-risk asset classes decreases annually till it reaches 10 per cent in each, while in low-risk class, the weight increases till it reaches 80 per cent at the age of 55. All central government employees from January 1, 2004, are covered under the NPS, while many state governments had joined the scheme later. So far, 1.1 million central government employees and 1.5 million employees from 22 state governments have joined the scheme with a corpus of Rs 17,047 crore and Rs 9,780 crore, respectively. The response from private sector has not been very encouraging, with only 2,02,679 subscribers adding barely Rs 1,254 crore to the NPS corpus.