Context: Recently,  Pension Fund Regulatory and Development Authority (PFRDA) has proposed a guaranteed return scheme, Minimum Assured Return Scheme (MARS), which will provide savers and people from the salaried class an option for their investments.

About Minimum Assured Return Scheme (MARS)
Aim

• To have a separate scheme that can offer a guaranteed minimum rate of return to NPS subscribers, especially those who are risk averse. 
• Currently, the NPS gives returns annually, based on prevailing market conditions.
• If implemented this will be the first scheme from the pension regulator that will offer a guaranteed return to investors.

Need

• India’s pension assets under management have already crossed the Rs 7-lakh crore mark and are expected to touch RS 7.5-lakh crore by end March this fiscal 2021-22.
• PFRDA is aiming for an AUM (Assets Under Management) of Rs 30-lakh crore by 2030.

Returns offered by the scheme

• The actual returns will depend on the market conditions. Any shortfall will be made good by the sponsor, and the surplus will be credited to the subscribers’ account.
• Two options are likely to be on offer. 
• Under the fixed guarantee option, the guaranteed return is fixed along the accumulation phase.
• Under the floating guarantee option, the guaranteed rate of return is not fixed along the savings phase.

The floating guarantee depends on the development of the 1-year interest rate until retirement. 

• The current 1-year interest rate is assigned to each annual contribution made, and is valid until retirement so that, at each point of time, there is a different minimum return.
• This is similar to the ATP system in Denmark.

Lock-in option

• According to the current plan, lock-in may be applicable on each contribution, and will be applied based on the period since that contribution has been made.
• It may also consider multiple lock-in period options (or staggered guarantee periods) for flexibility.

Limit of Contribution

• Minimum and maximum monetary limits on contributions may be prescribed. The attraction for investors will be the minimum guaranteed return.

National Pension System

• Introduced with effect from January 2004 (except for armed forces). 
• It seeks to provide retirement benefits to all citizens of India, even from the unorganized sectors. 
• Implemented & regulated by PFRDA (Statutory Authority).
• The NPS has been gradually growing in size and now manages Rs 5.78 crore of savings and 4.24 crore accounts in multiple savings schemes.

Structure: The scheme is structured into two tiers:

• Tier-I account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.
• Tier-II account: This is a voluntary withdrawable account that is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.

Pension Fund Regulatory and Development Authority (PFRDA)

• It is the Statutory body under the umbrella of the Ministry of Finance.
• It was established by an enactment of the Parliament, to regulate, promote and ensure orderly growth of the National Pension System (NPS) and pension schemes to which this Act applies.

By: Shubham Tiwari