Minimum Assured Return Scheme (MARS)

Context

The Pension Fund Regulatory and Development Authority (PFRDA) is preparing to launch a guaranteed return scheme called Minimum Assured Return Scheme (MARS).

About MARS

• This will be the first scheme from the pension regulator that will offer a guaranteed return to investors.
• Currently, the NPS gives returns annually, based on prevailing market conditions.
• The actual returns under the scheme 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.

What is PFRDA?

• It was established through the Pension Fund Regulatory & Development Authority Act, 2013.
• Pension Fund Regulatory and Development Authority (PFRDA) is a statutory regulatory body set up under PFRDA Act enacted on 01.02.2014 .
• It is under the jurisdiction of the Ministry of Finance .
• PFRDA is the authority that operates the National Pension System (NPS), subscribed by employees of Government of India, State Governments and by employees of private organizations & unorganized sectors.
• It has an objective to promote old age income security and protect the interests of National Pension System subscribers.
• The PFRDA is ensuring the orderly growth and development of the pension market.
• The Authority shall consist of a Chairperson and not more than six members, of whom at least three shall be whole time members, to be appointed by the Central Government.