corporate law

Recent PFRDA Circular: Enhancing Annuity Options for NPS Subscribers

Overview of Recent PFRDA Circular on Annuity Service Providers

The Pension Fund Regulatory and Development Authority (PFRDA) has released a significant circular pertinent to all stakeholders of the National Pension System (NPS) and Annuity Service Providers (ASPs). This circular clarifies subscribers' options for selecting an ASP when exiting the NPS, confirming that there are no extra fees or intermediation costs for subscribers who choose their annuity options.

Empowering Subscriber Choices

This circular emphasizes the right of subscribers to select an ASP that best meets their personal needs and preferences during NPS exit. To assist subscribers in making informed decisions regarding their ASP and annuity scheme, the PFRDA has mandated support from government nodal officers, Points of Presence (POPs), and the National Pension System Trust (NPST).

Key Points on Subscriber Empowerment

  1. Subscribers are entitled to choose their ASP and annuity scheme based on individual requirements.
  2. Support from designated authorities (government officials and trust representatives) is essential for a seamless transition into retirement.
  3. This initiative aims to enhance the retirement planning experience for NPS subscribers, while ensuring adherence to legal standards.

Clarification on Fees and Charges

The circular details the fees and charges related to annuity services from ASPs, affirming that subscribers will not face any costs beyond the annuity premium set by the Insurance Regulatory and Development Authority of India (IRDAI).

Details Concerning Fees

  • Subscribers are only responsible for the approved annuity premium; no additional charges apply.
  • Government taxes and other regulatory obligations are exempt from this restriction.
  • ASPs must engage directly with subscribers, eliminating any intermediation expenses.

Annuity Cancellation/Surrender Policy

According to PFRDA Circular No. PFRDA/2024/18/SUP-ASP/01 (October 24, 2024), cancellation or transfer of an annuity is permitted only within the "free look period" established by the ASP. After this period, cancellations or transfers are prohibited unless they fall under specific exceptions as determined by the PFRDA.

Transfer of Proceeds on Cancellation

If a subscriber cancels an annuity within the free look period and selects a new ASP, the proceeds will be transferred to the Trustee Bank. Additionally, the Central Recordkeeping Agency (CRA) will be notified to issue a new policy.

Exceptions to Cancellation Rule

Exceptions may be granted due to legal stipulations or special circumstances as decided by the PFRDA. Further operational guidance will be provided by the Authority.

Compliance Responsibilities for ASPs

Each ASP’s compliance officer must ensure conformity with the exit regulations and all relevant laws regarding annuities. They are responsible for monitoring compliance and addressing any grievances from subscribers who have purchased annuities post-NPS exit.

Compliance Requirements

  • ASPs must issue a compliance certificate confirming adherence to regulations related to fees and charges.
  • They are also required to respond to subscriber grievances promptly to foster trust and fulfill regulatory obligations.

Compliance Certification Template

Subject: Compliance Certificate by ASP on Fees, Charges & Intermediation

We, [ASP Name], hereby certify our compliance with PFRDA regulations regarding fees and charges applicable to subscribers for annuity products via the NPS. We affirm the following:

A. Premium Compliance: Fees charged to subscribers strictly adhere to IRDAI-approved premium rates, with no hidden charges.

B. Government Taxes: Taxes levied by the Government are not included in the fee restrictions.

C. No Intermediation Costs: There are no additional costs incurred from intermediaries; we conduct direct transactions with subscribers.

D. Compliance Monitoring: We are fully committed to complying with PFRDA regulations and effectively addressing subscriber grievances.