Expect inflation-indexed annuities soon: Pension Fund body chief

Savers concerned about the deleterious impact of inflation on their fixed retirement income may soon be able to buy indexed annuity products with returns linked to the pace of price rise, the Pension Fund Regulatory and Development Authority (PFRDA) chief signalled on Tuesday.

The pension regulator, which oversees the National Pension System (NPS) with retirement savings of ₹6.76 lakh crore, is working with the Insurance Regulatory Development Authority of India (IRDAI) to provide such an option to its more than 4.7 crore members that include government and private sector employees as well as self-employed and informal sector workers.

“For a lot of people, once the annuity income starts, it remains constant over their lifetime,” said PFRDA chairman Supratim Bandopadhyay. “While there is one product that offers a simple 3% annual increase in annuity income, it will not take care of the inflation risk,” he added. “We have been talking to the insurance regulator… and annuity providers, whether they can think of such a variable annuity which gives some cushion against the rise of inflation,” he said in response to a query on inflation reducing the value of annuity incomes mandated under the NPS.

‘Panel submitted report’

“They have had some working committee on the issue and a report has also been submitted. We are in discussions with the IRDA to make sure that such products can be launched as soon as possible,” he said at a webinar hosted by Assocham on NPS benefits for corporates.

Mr. Bandopadhyay has been flagging the poor returns offered in annuity products where NPS members are required to put 40% of their retirement corpus in return for a monthly income till their demise.

“Suppose somebody reached ₹2.1 lakh at retirement, he will get an annuity of ₹84,000 which today will give an income of ₹400 or ₹450 a month, which is a pittance… Since annuities are taxable, deducting tax and factoring in inflation means annuities are yielding negative returns,” he had pointed out earlier this year.

Apart from pushing for an inflation-indexed annuity product, the PFRDA is pursuing legislative changes to drop the stipulation that 40% of NPS accumulations must go into an annuity at the time of retirement.