On the eve of shortlisting pension fund managers and distributors (points of presence), Pension Funds Regulatory and Development Authority chairman D. Swarup spoke to
and Sandeep Singh on the nitty-gritty of the new scheme. Excerpts:
Where will a subscriber’s money be invested?
There are likely going to be three options — equities, government bonds and corporate bonds. You chose how much you want to invest and where. You choose you ratio for investment.
What if a subscriber is cannot choose?
In that case, the regulator will invest in a 'default option'. And the default option will be based on a life cycle approach. When you are young, you will have a higher equity exposure than when you're older. This allocation will change from high equity to low equity in a gradual manner and will be automatically done by the central record keeping agency.
When can a subscriber exit?
You will have to put aside 40 per cent of the corpus towards buying an annuity from an IRDA regulated entity. However, I am allowing a gradual withdrawal option upto the age of 70. This will benefit the subscriber in case the market dips when he's 60.
Will this scheme be tax-neutral?
For the past two years, I have been asking for not a favourable treatment but for an equitable tax treatment. There is a tax disadvantage in pension funds compared to EPF or PPF. The latter are completely tax exempt. Pension funds will be taxed at the time of exit at the marginal rate.
How much will subscribers finally pay?
Even though the bids were at different prices, all selected players will have to operate at the lowest bid. So if UTI has quoted 0.09 basis points (100 basis points makes 1 percentage point) to manage the money, all six selected players will have to operate at that lowest cost.
It is unlikely that the total collection this year will cross Rs 10,000 crore. What is the AMC getting working at this low price?
Nothing. They are losing out and I had warned all of them that you enter this business only if you are a serious player. You are not going to make money for the first several years.