'PFRDA may look beyond annuities if Act's tweaked,' says chairman

New annuity products, however, will require no modifications to Act

Pension Fund Regulatory and Development Authority (PFRDA) Chairman Supratim Bandyopadhyay said the regulator could consider allowing new annuity products. But will have to wait for amendments to the PFRDA Act — listed for the current session of Parliament—to allow products offering returns not based on annuities. The Act now mandates the PFRDA to permit only annuity products.

“We can look at products other than annuities, but that is subject to amendments to the PFRDA Act,” clarified Bandyopadhyay.

There can also be different kinds of annuity products, such as those providing variable annuities. “We can look at those without waiting for modifications to the PFRDA Act,” he said.

There is also talk of inflation-linked annuity products, for which the Insurance Regulatory and Development Authority of India has constituted a committee.

“If these products are given the go-ahead, we will allow them,” said the PFRDA chairman.

Earlier speaking at the Confederation of Indian Industry event, Avdhesh Gupta, actuary with Bajaj Allianz Life Insurance, said over the past few years, endowment plans of the life insurance sector providing long-term income to customers have become popular.

“These provide tax-free income. Although they are not exactly annuities, they are available for a long period of time, especially to meet retirement income needs,” said Gupta.

He said deferred annuity products have also become popular of late. It is time these products were looked at, he said.

The PFRDA chairman said the lowest return offered by annuity is 5.2 per cent. It will come down in line with movement in long-term interest rates.

The fixed return annuity is taken by those who are told these work best for them. “They accept it without question. With this kind of spoon-feeding, their mindset will not change. We have to tell them what works best for them,” he said.

On long-term bonds, he said these are not available in the market yet because there is no demand for them. But the Reserve Bank of India would be only too glad if apprised of the demand, he said.

He said the new pension system (NPS) has generated good returns for subscribers over the past 12 years, and one must start early to reap the benefits of the product, which is flexible in nature.

“Currently, we are sitting on a total corpus of around Rs 6.85 trillion. The returns have been quite good,” Bandyopadhyay said at the event.

“There is flexibility in the sense that just for keeping an account running, you have to pay only Rs 1,000. There is no fixed contribution, and you can contribute up to whatever level,” he said.