Pension Bulletin (November 2024)

November 2024November 2024November 2024 Acknowledgment The Pension Bulletin is issued monthly by the Department of Policy Research, Market Watch, and Systemic Risk under the direction of the Pension Bulletin Editorial Committee. The Committee and PFRDA are not responsible for the interpretation and opinions expressed. In the case of articles, the responsibility is that of the author and not of the PFRDA. Comments and observations may please be forwarded to the department at market.watch@pfrda.org.in. @Copyright: Pension Fund Regulatory and Development Authority (PFRDA). प्रमाणन पेंशन बुलेटिन प्रत्येक महीने नीति अनुसधं ान, माकेि वॉच और ससस्िसमक ररस्क ववभाग द्वारा, पेंशन बुलेटिन सपंादकीय ससमति के तनदेशन में जारी ककया जािा है। ससमति और पीएफआरडीए व्याख्याओ ं और प्रकि ककए गए मिों के सलए उत्तरदायी नहीं हैं। लेखों के मामल ेमें, जजम्मेदारी लेखक की होिी है, न कक पीएफआरडीए की। तिप्पणणयााँ और अवलोकन कृपया ववभाग को market.watch@pfrda.org.in पर अग्रवेिि ककए जा सकि ेहैं। @कॉपीराइि: पेंशन फंड तनयामक और ववकास प्राधधकरण (पीएफआरडीए).November 2024 Glossary AA Accou nt Aggregators G-sec Government securities AIF Alternate Investment Fund GBP Pound Sterling Digital Personal Data Protection Act, DPDP Act 2023 GDP Gross Domestic Product APY Atal Pension Yojana GST Goods and Service Tax ASP Annuity Service Provider GSTN Goods and Services Tax Network AUM Asset Under Management IGB Indian Government Bonds CAGR Compounded Annual Growth Rate CDD Client Due Diligence INR Indian Rupee CFT Combating the Financing of Terrorism IIP Industrial Production Index CIP Customer Identification Procedures Insurance Regulatory and CKYCR Central KYC Records Registry IRDAI Development Authority of India CRA Central Recordkeeping Agency CPI Consumer Price Index IT Act Information Technology Act, 2011 DC Defined Contribution KYC Know Your Customer Debt-VRR Debt Voluntary Retention Route LTCG Long Term Capital Gain E Equity and Related Instruments NBFC Non-Banking Financial Company NPS National Pension System EPF Employees Provident Fund Organization for Economic Employees Provident Fund OECD EPFO Cooperation and Development Organization PIPE Private Investment in Public Equity ETF Exchange-Traded Fund PoP Points of Presence EU European Union RBI Reserve Bank of India FAR Fully Accessible Route REIT Real Estate Investment Trust FBIL Financial Benchmark India Pvt. Ltd. SBI SBI Pension Funds Private Limited Foreign Institutional Investors/Foreign FII/FPI STCG Short Term Capital Gain Portfolio Investors TATA Tata Pension Management Limited FIP Financial Information Providers USD United States Dollar UTI UTI Retirement Solutions Limited FIU Financial Information Users VCF Venture Capital Fund Financial Stability and Development FSDC Council WPI Wholesale Price Index Government Bonds and Related G Instruments iiNovember 2024 Table of Contents S. No. Section Details Page No. I Economy 2 Data Table 9 Systematic Lumpsum Withdrawal-Reaping Benefits from II Article 11 NPS even after Exit Hong Kong Pension System III International Section 16 Pension Markets in Focus 2024 – Key Highlights IV Did you Know? 20 Master Circular – Guidance to Retirement Advisers V Circulars & Regulations 24 Data Centre VI 26 (NPS & APY Statistics) Sector wise NPS Growth No. of NPS & APY Subscribers Contribution from NPS & APY Subscribers AUM under NPS & APY PFM-wise Total Assets under NPS schemes Scheme wise AUM under NPS PFM-wise Return on NPS Schemes iiiNovember 2024 Section 1/ 1 खंड Economy/ अर्व्थ यवस्र्ा 1November 2024 Indian Economy1 Capital Market the other hand, the BSE Sensex posted a 0.5 percent gain during the month. In contrast, both The benchmark Indian indices saw a slight indices had experienced declines of 6.2 percent change in November 2024. The Nifty 50 index and 5.8 percent, respectively, in the previous dropped by 0.3 percent, closing below the 24,132 month. level, marking its lowest point in five months. On Monthly Return (%) of Benchmark Indices 10 8 6 4 2 0 -2 -4 -6 -8 Nifty 50 S&P BSE Sensex investing an average of USD 6.1 billion per month, with investments ranging between USD November marked the second consecutive 4.2 billion and USD 9.6 billion during those four month of foreign fund outflows, with Foreign months. FPI investments now encompass equity, Portfolio Investors (FPI) withdrawing USD 2.3 debt, mutual funds (MFs), and alternative billion. However, this was significantly lower investment funds (AIFs). November saw notable than the substantial outflow of USD 11.4 billion outflows from both the equity and debt in October, which was the largest since March segments. 2020. From June to September, FPIs had been 1 The data used in this section has been taken from CMIE’s Economic Outlook and MOSPI. 2November 2024 Investment in Debt Segment ($ mn) 4000 3000 2000 1000 0 -1000 -2000 -3000 -4000 -5000 -6000 -7000 Mutual Fund FPI The debt segment also saw divestments in Divestments from the equity segment amounted November, with FPIs withdrawing USD 0.5 billion, following net outflows of USD 0.4 billion to USD 2.2 billion, following a substantial in the previous month. In contrast, Domestic outflow of USD 11.2 billion in the previous Institutional Investors (DIIs) invested USD 5.2 month. The FPI witnessed outflows in the first billion in the Indian equity market in November, half of November totalling USD 3.2 billion, while building on a record-high investment of USD in the second half it saw net inflows of USD 1 12.1 billion in the previous month. billion. Investment in Equity Segment ($ mn) 15,000.00 10,000.00 5,000.00 0.00 -5,000.00 -10,000.00 -15,000.00 FPI Mutual Fund Indian Currency Yen (JPY). The INR depreciated by 0.4 percent during the month, averaging an exchange rate of In November, the Indian Rupee (INR) weakened Rs.84.36 per USD. Since June 2024, the Rupee has against the US Dollar, while it appreciated generally been depreciating against the US against other major currencies such as the Pound Dollar, with exceptions in September. On Sterling (GBP), the Euro (EUR), and the Japanese 3November 2024 November 22, the exchange rate hit a historic low averaging Rs.107.57 per GBP. It strengthened by of Rs.84.50 per USD. 2.2 percent against the Euro, averaging Rs.89.69 per EUR. The INR also gained 2.1 percent against The INR appreciated against the GBP, EUR, and the Japanese Yen, averaging Rs.0.5494 per JPY in JPY for the second consecutive month, following November. a three-month period of depreciation. Against the Pound Sterling, the INR rose by 1.9 percent, Average INR against Major Currencies 115 0.6 0.59 110 0.58 105 0.57 0.56 100 0.55 95 0.54 90 0.53 0.52 85 0.51 80 0.5 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Rs./US Dollar Rs./Pound Sterling Rs./Euro Rs./Japanese Yen (RHS) In November 2024, gold prices on the London Commodity Price Bullion market averaged USD 2,650.7 per troy ounce, marking a 1.5 percent decline after a The price of the Indian basket of crude oil significant 4.8 percent increase in the previous dropped by 2.9 percent in November 2024, month. Gold had reached a record high of USD averaging USD 73.1 per barrel. In November, the 2,690.1 per troy ounce in October. Domestically, price remained below the USD 80 per barrel gold prices in the BSE spot market fell by 1 mark for the fourth consecutive month. The percent in November, following two months of average price in November was the lowest since increases. The average price was Rs.75,956.9 per September 2021. Throughout the month, crude 10 grams. oil prices fluctuated within a range of USD 71.3 to USD 74.8 per barrel. 4November 2024 Average Gold and Crdue Price ($) 2,900 95 2,700 90 2,500 85 2,300 80 2,100 75 1,900 1,700 70 Gold Crude In November 2024, yields on Government bps, respectively, with monthly averages of 6.91 securities (G-secs) increased across all maturities percent and 6.89 percent in November. for the second consecutive month. While yields had slightly risen in October, they had been In November, the yields on AAA-rated corporate declining since May for all securities except 1- bonds with short and long-term maturities year bonds. Yields on 1-year G-secs, which had showed mixed trends. The yield on one-year been falling for four months, reversed this trend corporate bonds increased by 10 basis points, and rose significantly in November, climbing reaching an average of 7.79%. In contrast, yields three basis points (bps) to an average of 6.70 on longer-term bonds decreased. Three-year percent. Yields on 3-year and 5-year G-secs each bond yields dropped slightly by one basis point, rose by six bps, averaging 6.75 percent and 6.77 averaging 7.55%. The yield on five-year AAA- percent, respectively. The benchmark 10-year G- rated bonds declined by nine basis points to a sec yield also increased by four bps, averaging weighted average of 7.54%. Meanwhile, the yield 6.84 percent. Long-term yields, such as those on on 10-year corporate bonds fell by thirteen basis 12-year and 15-year G-secs, rose by six and five points, averaging 7.41%. Interest Rate (%) 8 7.5 7 6.5 6 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Repo rate WACR G Sec 1-year G Sec 5-year G Sec 10-year Corp Bond 10-year AAA 5November 2024 CPI Inflation After December 2023, inflation rate for both CPI(General) and CFPI were declining, reaching Year-on-year inflation rate based on All India their lowest point in July 2024. However, from Consumer Price Index (CPI) for the month of August, 2024 to October. 2024, an increasing November, 2024 over November, 2023 is 5.48% trend was observed. In November, 2024 inflation (Provisional). Corresponding inflation rates for has again declined. The decline in inflation in rural and urban are 5.95% and 4.83%, November 2024 is mainly due to decline in respectively. Year-on-year inflation rate based on inflation in “food & beverages” group. All India Consumer Food Price Index (CFPI) for the month of November, 2024 over November, 2023 is 9.04%. CPI Inflation Rate (%) 12 10 8 6 4 2 0 -2 -4 -6 -8 General Index Food and beverages Pan, tobacco and intoxicants Clothing & footwear Housing Fuel & light Miscellaneous witnessed decline in November 2024 over the corresponding period of last year. Fuel & Power WPI Inflation price index declined by -5.83% due to decline in The annual rate of inflation based on all India prices of petrol and HSD during the same period. Wholesale Price Index (WPI) number is 1.89% The price index of Manufactured Products (Provisional) for the month of November, 2024 increased by 2.00% in November, 2024. The main (over November, 2023). Positive rate of inflation contributor to the rise in manufacturing products in November, 2024 is primarily due to increase in is Food products (9.44%). Price of non-metallic prices of food articles, food products, other mineral products, fabricated mineral products manufacturing, textiles, machinery & and basic metals have declined during equipment, etc. November 2024. Primary Articles increased by 5.49% in The rate of inflation based on WPI Food Index November, 2024 over November 2023. Increase decreased from 11.59% in October, 2024 to 8.92% in price index was witnessed in food articles in November, 2024. (8.63%) and minerals (5.89%). Non-food articles (-0.98%) and Crude & Natural gas (-8.11%) 6November 2024 WPI Inflation (%) 15 10 5 0 -5 -10 -15 WPI Food articles Non-food articles Minerals Crude petroleum & natural gas Fuel & power Manufactured products Food group 3.1 percent in Capital goods, 3.7 percent in Intermediate goods, 4.0 percent in The IIP growth rate for the month of October Infrastructure/ Construction Goods, 5.9 percent 2024 is 3.5 percent which was 3.1 percent in the in Consumer durables and 2.7 percent in month of September 2024. The growth rates of Consumer non-durables. Based on use-based the three sectors, Mining, Manufacturing and classification, top three positive contributors to Electricity for the month of October 2024 are 0.9 the growth of IIP for the month of October 2024 percent, 4.1 percent and 2.0 percent respectively. are – Primary goods, Intermediate goods, and The corresponding growth rates of IIP as per Consumer durables. Use-based classification in October 2024 over October 2023 are 2.6 percent in Primary goods, IIP Growth (%) 25 20 15 10 5 0 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 -5 -10 IIP Mining & quarrying Manufacturing Electricity Primary goods Capital goods Intermediate goods Infrastructure/construction goods Consumer durables Consumer non- durables 7November 2024 India’s real GDP is projected to grow by 5.4% in The tertiary sector grew by 7.1% in Q2 of FY Q2 of FY 2024-25, compared to an 8.1% growth in 2024-25, up from 6.0% in the same period last Q2 of FY 2023-24. Despite weak performance in year. Specifically, the Trade, Hotels, Transport, the Manufacturing (2.2%) and Mining & Communication, and Broadcasting Services Quarrying (-0.1%) sectors in Q2 of FY 2024-25, sectors saw a growth rate of 6.0% in Q2 of FY real GVA for the second quarter of the year (July- 2024-25, compared to 4.5% in Q2 of FY 2023-24. September) has grown by 5.6%. Private Final Consumption Expenditure (PFCE) The Agriculture and Allied sector has shown increased by 6.0% in Q2 of FY 2024-25, compared recovery with a growth rate of 3.5% in Q2 of FY to 2.6% in Q2 of the previous year. 2024-25, after slower growth ranging from 0.4% to 2.0% in the previous four quarters. Government Final Consumption Expenditure (GFCE) rebounded with a growth of 4.4%, The Construction sector experienced growth of following negative or low growth in the previous 7.7% in Q2 of FY 2024-25, driven by consistent three quarters. domestic demand for finished steel. Absolute GVA at current Price and Y-o-Y Growth (%) 25 80.00 70.00 21.3 20 % 60.00 h t w 15 50.00 ) r c h o r G 11.3 40.00 k a L ( Y 10 10.0 30.00 A o Y-- 5 5.0 4.3 5.0 4.8 6.0 8.3 7.7 6.8 6.3 6.8 52 .60.00 V G 10.00 0 0.00 GVA at current price GVA Growth (%) 8November 2024 Data Table Economic Indicators YoY change Indicators Nov-23 Oct-24 Nov-24 (% / bps) FPI Equity Investments (USD 2.91 -11.44 -2.25 -177.32 billion) Rupees per dollar 83.30 84.03 84.36 1.27 Rupees per Pound Sterling* 103.36 109.65 107.57 4.07 Rupees per Euro* 89.99 91.57 89.63 -0.40 Rupees per Japanese Yen* 0.5561 0.5609 0.5494 -1.20 Gold (USD/troy ounce)* 1985.30 2690.10 2650.70 33.52 Crude Oil (USD/Barrel)* 83.50 75.30 73.10 -12.46 Weighted Average Call rate (%) 6.67 6.44 6.45 -22 Market repo rate (%) 6.50 6.50 6.50 0 G sec 1-year (%) 7.13 6.67 6.70 57 G sec 10-year (%) 7.27 6.80 6.84 -43 AAA rated corporate bond 10- 7.83 7.55 7.41 -42 year (%) CPI Inflation (%) 5.55 6.21 5.48 -7 WPI Inflation (%) 0.39 2.36 1.89 150 IIP# (%) 11.90 3.10 3.50 -840 # IIP data as on Oct 2023, Sep 2024 and Oct 2024 respectively. * Average Monthly Exchange Rate 9November 2024 Section 2/ 2 खंड Article/ लेख 10November 2024 Systematic Lumpsum Withdrawal-Reaping Benefits from NPS even after Exit2 A subscriber can exit from National Pension risk assets, and it may also heighten the risk of System (NPS) upon attaining the age of financial fraud. superannuation as prescribed by the service Just as Systematic Investment Plan (SIP) helps rules applicable to him or her. As per PFRDA the individuals to steadily build their wealth (Exits and Withdrawals under the NPS) by regularly investing small amounts, Regulations, 2015 (Exit Regulations) and Systematic Lumpsum Withdrawal (SLW) amendments thereto, subscriber has various enables individuals to systematically draw choices to choose from at the time of exit from down their savings, during the de- NPS- accumulation stage. (i) Subscriber can exit from NPS with In this context, the concept of Systematic minimum 40% of accumulated Lumpsum Withdrawal (SLW) under NPS corpus to be utilized for purchase of gains significance. annuity and maximum 60% of accumulated corpus to be taken out as lumpsum. SLW under NPS (ii) Subscriber can purchase the annuity immediately with the In accordance with Regulation 3 and option to defer the withdrawal of Regulation 4 of PFRDA Exit Regulations the lumpsum amount upto the age of option of phased withdrawal of the lump sum 75 years. through Systematic Lump Sum Withdrawal (iii) Subscriber can withdraw the facility has been provided to the subscribers. lumpsum amount and defer the Systematic Lump Sum Withdrawal refers to purchase of annuity upto the age of the process wherein an NPS subscriber 75 years. withdraws a predetermined amount from his Subscriber also has the option to continue the accumulated corpus at regular intervals after NPS account and keep contributing to NPS retirement, rather than withdrawing the entire even after attaining the age of superannuation, corpus in one go. upto the maximum age of 75 years. Thus, SLW allows investors to receive regular One of the main dilemmas and risks faced by payouts taking into account the cash flow the investor/subscriber at the time of needs after retirement, while ensuring capital superannuation is reinvestment of the pension appreciation of the remaining corpus and corpus received. Several factors may affect the protecting it from the vagaries of the financial value of the pension corpus received at the markets at the time of one-time lumpsum time of superannuation, such as the market withdrawal at the time of superannuation. outlook, the tax implications etc. This method enables subscribers to receive Further, receiving a large sum of money at periodic payments while retaining the retirement can result in excessive spending, remaining funds in their NPS account, wasteful expenditures, or investments in high- allowing for continued growth through market-linked returns. The systematic withdrawal approach aligns with the broader 2 The author of the article is Sh. Manmeet Nagar, Assistant General Manager, PFRDA. The views expressed in the article are personal and do not necessarily represent that of the Authority. 11November 2024 objective of the NPS, which is to provide a retirement. According to Exit regulations, the steady and sustainable income during subscriber must allocate 40% of the corpus (₹40 retirement. lakh) to purchase an annuity, which will provide regular pension income. The The subscribers are allowed to withdraw up to remaining ₹60 lakh can be utilized for 60% of their pension corpus, through the SLW systematic lump sum withdrawals as per on a periodical basis viz. monthly, quarterly, following details- half-yearly or annually. • Initial Corpus for SLW: ₹60 lakh Two different options are available to the • Withdrawal Frequency: Annual subscribers for opting SLW: • Withdrawal Amount: ₹6 lakh per year (10% i. SLW based on age – In this option, of the SLW corpus)3 • Assumed Rate of Return on Remaining Subscriber can select his/her age up to Corpus: 8% per annum4 which SLW facility is required ii. SLW based on instalment amount – In Even after withdrawing a substantial amount this option, Subscriber can select the of Rs 6 Lacs annually, the corpus does not amount which he wishes to withdraw deplete rapidly due to the compounding systematically as per decided returns at 8%. After 10 years, an amount of Rs frequency. 35.66 Lacs will be remaining i.e. more than half of the initial SLW corpus remains intact. The phased withdrawals in SLW can be taken Moreever, if the SLW period is selected as 15 upto the maximum permitted age under NPS years, the remaining amount after will be 14.38 i.e. 75 years. Lacs after withdrawing Rs 90 Lacs from the corpus. If Subscriber wishes to modify/cancel SLW, then the same is also permitted during SLW By combining the systematic withdrawal of ₹6 period. lakh annually with the annuity income, which In case of unfortunate demise of subscriber can range from approximately ₹2.85 lakh (with during SLW, the balance lump sum amount the return of purchase price) to ₹3.40 lakh remaining in the corpus will be paid to the (without the return of purchase price), the nominee / legal heirs. subscriber can secure a substantial and reliable retirement income5. This strategy effectively Further, while opting for SLW, the subscriber balances regular withdrawals with a steady can either opt to defer their annuity till 75 years annuity stream, ensuring financial stability of age or commence it immediately upon throughout retirement. superannuation. Further, in case the subscriber needs the Practical Example: A Corpus of ₹1 Crore in lumpsum at any point of time, the SLW can be Systematic Lump Sum Withdrawals cancelled and the remaining amount can be withdrawn in one go. Consider an NPS subscriber who has accumulated a corpus of ₹1 crore at the time of 3 Withdrawal has been considered at the beginning of the year. 5 Annuity amount has been calculated for corpus of 4 Return of 8% per annum has been considered for this Rs 40 Lacs for a subscriber of 60 years with spouse computation, however, returns since inception have of 60 years for Joint Life Annuity option. been more than 9% under NPS. 12November 2024 Benefits of Systematic Lump Sum volatilities of the market and is able to offer Withdrawals: stability of income should also be considered. Steady Income Stream: By opting for Conclusion: For subscribers with a significant systematic withdrawals, subscribers can create corpus, SLW provides financial stability, a regular income stream that can supplement flexibility, and the potential for sustained their annuity payments, ensuring that they wealth accumulation during retirement. By have sufficient regular income. carefully planning withdrawals and considering market conditions, NPS Continued Investment Growth: The portion of subscribers can optimize their retirement the corpus that remains invested in the NPS finances, ensuring a comfortable and secured account continues to benefit from market- post-retirement life. As the NPS continues to linked returns, potentially enhancing the evolve, systematic lump sum withdrawals will overall retirement corpus over time. likely remain a key feature in helping Financial Flexibility: Systematic withdrawals subscribers achieve a financially secure offer greater financial flexibility compared to a retirement. one-time lump sum withdrawal. Subscribers References- can adjust the withdrawal amount and frequency based on their changing financial 1. PFRDA Circular No needs, such as medical expenses, travel plans, PFRDA/2023/30/SUP-CRA/10 dated or other contingencies. 27th Oct 2023 2. https://npscra.nsdl.co.in/download/ Prevents reinvestment risk and panic selling in Systematic%20Lumpsum%20Withdra case of an economic downturn and offers wal(SLW).pdf benefits in a bull market. 3. https://npstrust.org.in/sites/default/ Important points to keep in mind while files/SLW_FAQ_booklet%20New_2.p opting for SLW: df It is important to correctly assess the cash flow requirements after retirement while opting for SLW. Over withdrawal can cause depletion of the corpus, thus jeopardizing the sustainability of the corpus over the long term. On the other hand, underestimating one’s financial needs can also lead to financial distress. Selection of investment choice which is less prone to the ***** 13November 2024 14November 2024 Section 3/ 3 खंड International Section/ अंिराथष्ट्रीय खंड 15November 2024 Hong Kong Pension System Account Structure Hong Kong, China, has a multi-pillar pension Contributions are allocated into individual MPF framework designed to address the retirement accounts, comprising two main types: needs of its population. Given its aging • Contribution Account: The contribution account is demographic and limited social welfare provisions, the account that holds the MPF contributions made the pension system emphasizes individual savings, by both the employer and the employee. These employer-based contributions, and government contributions are typically made on a monthly basis, support for those in need. The system includes the and the funds in this account are invested in Mandatory Provident Fund (MPF), occupational accordance with the investment choices selected by retirement schemes, and social security programs, the employee. It holds mandatory and voluntary each serving different segments of the population. contributions during employment. 1. The Mandatory Provident Fund (MPF) • Preserved Account: A preserved account is an MPF System account that holds the funds an employee has The Mandatory Provident Fund (MPF) system was accumulated when they leave a job or switch established in December 2000 as a statutory employers. When an employee leaves a job, the retirement savings scheme to address the city's balance of their contribution account is transferred aging population and enhance financial security for to a preserved account. The funds in a preserved its workforce. It is a compulsory, employment-based account remain in the MPF system but are system that requires both employers and employees "preserved" for future use, typically until the to contribute a percentage of the employee's income employee reaches the retirement age or becomes to an MPF scheme managed by approved trustees. eligible for an early withdrawal (under specific conditions). Key Features of the MPF System Investment Options Compulsory Participation: Employees aged 18 to 64 and self-employed individuals are required to join MPF scheme members can choose among various the MPF system unless they fall under exempt funds, including equity funds, bond funds, mixed- categories (e.g., domestic workers or civil servants asset funds, and guaranteed funds. covered by other pension schemes). The Default Investment Strategy (DIS) was Mandatory Contributions: Both employees and introduced in 2017 to simplify decision-making for employers are required to contribute 5% of the members who do not select specific investment employee's monthly relevant income. The options. The DIS provides lifecycle investment contributions are subject to minimum and strategies with gradual de-risking as members maximum income levels: approach retirement age. • Minimum Income Level: HK$7,100 per month Portability and Flexibility (employees earning below this threshold are not Employees can transfer their contributions to a required to contribute). different MPF provider when changing jobs, • Maximum Income Level: HK$30,000 per month ensuring portability within the system. (contributions are capped at HK$1,500 each for both Voluntary contributions are permitted to employer and employee). supplement mandatory contributions, offering additional flexibility to enhance retirement savings. 16November 2024 Withdrawal Accrued benefits can typically be withdrawn at age 3. Social Security and Safety Net 65 or under specific circumstances, such as For individuals outside the MPF or occupational permanent departure from Hong Kong, early schemes, Hong Kong provides limited social retirement at age 60, or severe disability. security benefits targeting low-income and Reforms and Future Outlook vulnerable groups. Key components include: The MPF system has undergone continuous • Old Age Allowance (OAA): Also known as “fruit enhancements to address emerging challenges. Key money,” this program provides cash benefits to reforms include: residents aged 70 and above (or 65 and above with means testing). Introduction of the eMPF Platform: A centralized digital platform is being developed to streamline • Old Age Living Allowance (OALA): A administrative processes, improve efficiency, and supplementary benefit for older individuals facing reduce costs for both members and trustees. financial hardship, subject to income and asset limits. Greater Emphasis on ESG Investments: Incorporating Environmental, Social, and • Comprehensive Social Security Assistance (CSSA): Governance (ESG) factors into fund management to A means-tested program offering financial support align with global trends and investor preferences. for those in need, including the elderly. The MPF system is expected to remain a cornerstone of Hong Kong's retirement framework, adapting to 4. Recent Developments demographic shifts and economic conditions to ensure long-term sustainability and adequacy for its In recent years, several significant reforms have participants. been introduced to enhance the MPF system: - eMPF Platform: Launched in June 2024, this digital initiative aims to streamline and automate MPF 2. Occupational Retirement Schemes administration processes. It is expected to enhance Occupational retirement schemes offer an additional operational efficiency and reduce costs layer of retirement benefits for employees, significantly—estimated savings could reach particularly in private sector organizations. These between HK$30 billion to HK$40 billion over ten schemes include: years post-implementation. • Occupational Retirement Schemes Ordinance - Abolition of Offset Mechanism: Effective May 1, (ORSO): Enacted in 1993, ORSO governs voluntary 2025, employers will no longer be allowed to use retirement schemes set up by employers. accrued MPF benefits to offset statutory severance or long service payments. This change aims to • Defined Benefit (DB) and Defined Contribution strengthen retirement security by ensuring that (DC) Plans: Employers can offer either DB plans, employees' MPF contributions are preserved for guaranteeing a specific payout, or DC plans, where their intended purpose. benefits depend on contributions and investment returns. - Subsidy Scheme: The Hong Kong government plans to introduce a 25-year subsidy scheme, worth • ORSO schemes are popular among large approximately HKD 33 billion, to help employers corporations and serve as a supplementary option manage severance and long service payment costs. alongside the MPF system. This initiative is designed to alleviate financial 17November 2024 burdens on businesses while ensuring employee additional HK$2.4 million (around US$300,000) to benefits remain intact. meet their post-retirement expenses adequately. 5. Current Data • Adjustment of Income Levels: The minimum and maximum relevant income levels for mandatory As of mid-2024, the MPF system encompasses contributions have not been adjusted since 2013 and approximately 4.7 million members and about 2014, respectively. Stakeholders anticipate potential 360,000 participating employers. Key statistics increases in these thresholds to reflect wage growth include: over the past decade. - Total Assets Under Management: The aggregate net asset value of all MPF schemes exceeds HK$1.1 trillion (approximately US$140 billion). References: - Annualized Return: Since its inception, the MPF [1] has achieved an annualized internal rate of return https://www.fstb.gov.hk/en/financial_ser/MPF- (net of fees) of about 2.5%. system.htm [2] 6. Challenges and Considerations https://iuslaboris.com/insights/hong-kong- pension-update/ Despite its foundational role in retirement planning, the MPF system faces several challenges: [3] https://www.oecd.org/en/publications/pensions- • Retirement Savings Gap: Many residents may not at-a-glance-asia-pacific-2024_d4146d12-en/full- accumulate sufficient savings for retirement. report/hong-kong-china_423a117d.html Surveys indicate that individuals might need an 18November 2024 Section 4/ 4 खंड Did You Know? ? क्या आप जानिे हैं 19November 2024 Pension Markets in Focus 2024 – Key Highlights 3. Investment Performance in 2023 The OECD’s Pension Markets in Focus 2024 • Investment performance was strong, provides an in-depth analysis of global pension with nominal returns averaging 10% in market trends, with particular attention to asset- OECD countries and real returns at 4.8%. backed pensions. This edition reviews the • The MSCI World Index rose by 20%, recovery from 2022's investment losses, contributing significantly to returns. examines long-term trends in asset growth, and However, markets such as Hong Kong discusses the ongoing transition from defined and China underperformed due to local benefit (DB) plans to defined contribution (DC) economic challenges. plans. • Declining yields in late 2023 boosted bond valuations, further enhancing Key Findings pension providers' returns. 1. Growth in Assets Earmarked for Retirement • Pension assets in OECD countries grew 4. Long-Term Trends and the DB-to-DC Shift by 10% in 2023, reaching USD 63.1 • Pension assets more than tripled, from trillion by year-end. This growth was USD 20.8 trillion in 2003 to USD 63.1 driven by: trillion in 2023. This growth reflects o Strong investment performance, sustained investment income and policy particularly in equity markets. measures encouraging retirement o Positive cashflows, where savings. contributions exceeded benefit • The long-term shift from DB to DC plans payments and other continued in 2023. While DB plan expenditures. funding ratios improved, many • Assets is growing at significant pace and employers used favorable conditions to now remains just 5% below their 2021 terminate these plans, transferring risks levels. to individuals. 2. Regional and Structural Variations 5. Cashflows and Contributions • Major pension markets such as the U.S., • Most jurisdictions recorded surpluses, U.K., and the Netherlands showed where contributions outpaced benefit slower recovery, with asset levels still payments and expenditures. This was below those of 2021. particularly evident in countries with • Smaller markets like Iceland and newer mandatory systems, such as Switzerland exhibited stronger Greece and Georgia. performance, often exceeding 2021 • Mature markets like Canada and Finland levels. faced negative cashflows, driven by high • Emerging markets, such as Armenia and benefit payouts. Ghana, displayed rapid asset growth due • In regions like Zambia and Portugal, to recent pension reforms. However, early withdrawals and fund liquidations these jurisdictions remain small in hindered asset growth. absolute terms compared to OECD countries. 20November 2024 Challenges and Insights surpluses, as they had fewer retirees drawing benefits. Recovery from 2022 Losses • Employment and wage growth in 2023 • While 2023 marked a return to asset further boosted contributions. For growth, recovery was uneven. Major example, Lithuania saw real wages rise markets like the U.S. and U.K. struggled by 4.9%, contributing to one of the to offset 2022 losses, especially in bonds largest surpluses in the OECD. and real estate holdings. Vulnerabilities and Risks Public Pension Reserve Funds • Public pension reserve funds in most Aging Populations countries saw asset growth in 2023. • Mature pension systems face However, reserves remained below 2021 sustainability challenges as aging levels in key jurisdictions, including the populations increase benefit payouts. U.S., Finland, and France. For example, Finland and the U.S. saw • These funds faced significant outflows to significant reserve drawdowns to cover cover deficits in pay-as-you-go (PAYG) deficits. systems, impacting their overall recovery. Market Volatility • While equity markets contributed Geographic Disparities positively in 2023, reliance on equities • Countries with mandatory pension poses risks during downturns. Real systems and high participation rates, like estate and private equity investments Iceland and the Netherlands, maintained also showed vulnerabilities. robust asset levels relative to GDP. • Voluntary and newly established Early Withdrawals systems in Greece and Turkey showed • Policies permitting early withdrawals promising growth but remain limited in (e.g., Zambia’s partial withdrawal scale. scheme) can deplete reserves and hinder long-term asset growth. Drivers of Asset Growth Future Outlook Investment Income • Equity market gains and improved bond Policy Priorities valuations were primary drivers of asset 1. Sustainability: Policymakers must growth in 2023. address demographic pressures and • Real estate investments faced challenges, ensure balance between contributions particularly in markets like Canada and and payouts. Australia, due to rising interest rates and 2. Diversification: Enhancing investment changing work habits. strategies to reduce over-reliance on equities and mitigate risks from market Contribution Surpluses downturns. • Jurisdictions with newer systems 3. Participation: Expanding access to benefitted from higher contribution pension systems in underdeveloped and voluntary markets. 21November 2024 Long-Term Asset Growth Cashflows and Contributions: • Continued focus on fostering retirement • India's pension systems experienced a savings, increasing pension positive average annual cashflow over participation, and improving funding the last 5 years, with contributions ratios for DB plans will be essential. exceeding pay-outs by approximately • Strengthening governance and oversight 15.2% of total assets. of pension providers will also play a critical role in ensuring financial security for retirees worldwide. Asset Allocation and Returns: • Indian pension funds exhibit diversified Key highlights of India investment portfolios, focusing on both equity and debt instruments. The report Investment Returns: notes steady growth in asset • India reported nominal investment performance due to robust financial returns averaging 7.8% annually, with market conditions. real returns adjusted for inflation being 1.9%. This comprehensive evaluation of global pension trends underscores the resilience of pension systems amidst market fluctuations while highlighting areas requiring urgent attention to secure retirement incomes globally. References: https://www.oecd.org/en/publications/pension-markets-in-focus-2024_b11473d3-en.html 22November 2024 Section 5/ 5 खंड Circulars/Regulations/Guidelines पररपत्र/ववतनयम/टदशातनदेश 23November 2024 Circular No: PFRDA/Master Circular/2024/06/RA-01 27 November Master Circular – Guidance to 2024 Retirement Advisers This master circular consolidates the existing time of onboarding of the subscriber along with the instructions on the subject of “Guidance to onboarding charges. Retirement Advisers”. Retirement Advisers shall submit the Annual Anyone acting or desirous of acting as Retirement Compliance Certificate (by both Individual and Non Adviser shall obtain certification from the National - individual Retirement Advisers) and Annual Institute of Securities Markets (NISM) by passing the Certificate duly certified by Chartered Accountant "NISM-Series-XVII: Retirement Adviser (by the Non-Individual Retirement Adviser) by 30th Certification Examination" to become eligible for April of every year to the "Regulation Department” grant of certificate of registration as a Retirement of the PFRDA. Adviser, besides fulfilling other terms and Every Individual Retirement Adviser shall source a conditions mentioned in the regulations. minimum number of 36 NPS accounts and Non- “Subsequent Transaction Charges” to be collected individual Retirement Advisor should source a by Retirement Advisers – Individuals and Non- minimum number of 72 accounts during their tenure Individuals as mentioned vide circular of registration (i.e. 3 years) as Retirement Adviser to PFRDA/2018/39/RA dated 09th January 2018 has consider their renewal application. been discontinued from the date of issue of this RAs should adhere to the Pension Fund Regulatory Master Circular. and Development Authority (Redressal of The scope of such advice being provided by the Subscriber Grievance) Regulations, 2015 for Retirement Advisers in any manner, either oral or in redressing complaints pertaining to services writing to the subscribers will be limited to rendered to NPS subscribers. asset/investment allocation and choice of a Pension Retirement Adviser shall follow the 'Service Fund Manager (PFM) for their financial assets under Standards' as provided, for providing the functions NPS or any other scheme regulated by PFRDA. relating to the onboarding of subscribers, The advisory charges can be collected by the instructions/ contributions from subscribers and Retirement Adviser (RA) only when the subscriber transmission of the same to designated NPS has signed an agreement with the RA for providing intermediaries. advice. No advisory charges shall be collected at the 24November 2024 Section 6/ 6 खंड NPS/APY Statistics एनपीएस/एपीवाई आाँकड़े 25November 2024 i. No. of Subscribers: The number of subscribers in I. Sector Wise Growth / क्षत्रे वार वद्ृ धध various schemes under the NPS and APY rose to 797.58 Lakh by the end of November 2024 from The total number of subscribers, contributions, and 690.30 Lakh in November 2023 showing a year-on- assets under management for the NPS and APY as year (Y-o-Y) growth of 15.54 %. on 30th November 2024, are as under. The below data is a compilation of data from the three CRAs registered with PFRDA. Table 1: NPS & APY growth in Subscribers base as on 30th November 2024/ 30 नवम्बर 2024 िक एनपीएस और एपीवाई के असभदािाओ ं की संख्या में वद्ृ धध No. of Subscribers (in lakh) / असभदािाओं की YoY (%) / S.N. / क्रम Share (%) / Sector / क्षत्रे सख्ं या (लाख में) वाविकथ वद्ृ धध सख्ं या टहस्सेदारी (%) (%) 30-Nov-23 31-Mar-24 30-Nov-24 i CG 25.12 26.07 26.87 6.97 3.37 ii SG 63.45 65.96 68.11 7.34 8.54 Sub Total 88.57 92.03 94.98 7.24 11.91 iii Corporate 18.71 19.48 21.92 17.16 2.75 iv All Citizen 31.63 35.64 39.28 24.19 4.92 v Vatsalya 0.70 0.09 Sub Total 50.34 55.12 61.90 22.96 7.76 vi NPS Lite 33.23 33.28 33.46 0.69 4.20 vii APY 518.16 555.12 607.24 17.19 76.14 viii Grand Total 690.30 735.56 797.58 15.54 100.00 Source: CRAs ii. Contribution: As on 30th November 2024, total iii. Assets under Management: As of 30th November contribution for both NPS and APY stood at Rs. 2024, the combined pension assets under 9,67,912 crores showing a Y-o-Y growth of 22.59%. management for both the NPS and the APY stood at Rs 13,55,292 crores showing a year-on-year growth of 28.52%. 26November 2024 Table 2: NPS & APY growth in Contribution as on 30th November 2024/ 30 नवम्बर 2024 िक एनपीएस और एपीवाई के कॉजररब्यूशन में वद्ृ धध S.N. / YoY (%) / Share (%) / Contribution (Rs. in crore) / योगदान (रु. करोड़ में) क्रम Sector / क्षत्रे वाविकथ वद्ृ धध टहस्सेदारी सख्ं या (%) (%) 30-Nov-23 31-Mar-24 30-Nov-24 (i) CG 2,06,695 2,19,498 2,47,177 19.59 25.54 (ii) SG 3,91,208 4,20,085 4,73,933 21.15 48.96 Sub Total 5,97,903 6,39,583 7,21,110 74.50 (iii) Corporate 1,05,894 1,16,097 1,37,989 30.31 14.26 (iv) All Citizen 46,081 52,950 59,837 29.85 6.18 (v) Vatsalya 42 0.00 (vi) Tier-II 7,522 8,069 9,406 25.05 0.97 (vii) TTS 14 16 18 28.57 0.00 Sub Total 1,59,511 1,77,132 2,07,292 21.42 (viii) NPS Lite 3,297 3,359 3,490 5.85 0.36 (ix) APY* 28,834 31,098 36,020 24.92 3.72 Grand Total 7,89,545 8,51,172 9,67,912 22.59 100.00 * Fig does not include APY Fund Scheme Source: CRAs Table 3: NPS & APY growth in AUM as on 30th November 2024/ 30 नवम्बर 2024 िक एनपीएस और एपीवाई के एयूएम में वद्ृ धध S.N. / क्रम AUM (Rs. in crore) / एयएू म (रु. करोड़ में) YoY (%) / वाविकथ Share (%) / Sector / क्षत्रे सख्ं या वद्ृ धध (%) टहस्सेदारी (%) 30-Nov-23 31-Mar-24 30-Nov-24 (i) CG 2,96,195 3,22,215 3,64,416 23.03 26.89 (ii) SG 5,25,242 5,82,673 6,72,179 27.98 49.60 Sub Total 8,21,437 9,04,888 10,36,595 26.19 76.48 (iii) Corporate 1,45,459 1,66,729 2,02,025 38.89 14.91 (iv) All Citizen 45,698 54,396 62,165 36.03 4.59 (v) Vatsalya 40 0.00 (vi) Tier-II 4,746 5,413 6,612 39.32 0.49 (vii) TTS 15 18 19 26.67 0.00 Sub Total 1,95,918 2,26,556 2,70,861 38.25 19.99 27November 2024 (viii) NPS Lite 5,246 5,560 5,954 13.50 0.44 (ix) APY 31,976 35,647 41,882 30.98 3.09 Grand Total 10,54,577 11,72,651 13,55,292 28.52 100.00 Source: CRAs II. PFM-wise Assets under NPS schemes / पीएफएम के अनसु ार एनपीएस योजनाओं के अिं गिथ सपं वत्तयााँ Table 4: Pension Fund-wise Assets under Management (in crore) as on 30th November 2024/ 30 नवम्बर 2024 को पेंशन फंड के अनुसार एयूएम (करोड़ में) AUM (Rs. In Crore) Growth (%) % PF Over zxxcxv share 30-Nov-23 31-Mar-24 29-Nov-24 YOY March 24 SBI 3,93,315.32 4,33,384.62 4,88,232.75 24.13 12.66 36.00 LIC 2,93,969.44 3,22,161.92 3,61,903.77 23.11 12.34 26.68 UTI 2,77,079.80 3,02,676.57 3,39,828.15 22.65 12.27 25.06 ICICI 21,795.99 28,419.13 40,510.09 85.86 42.55 2.99 Kotak 3,742.88 4,705.99 5,969.29 59.48 26.84 0.44 HDFC 62,461.37 76,954.78 1,04,181.88 66.79 35.38 7.68 Aditya Birla 1,145.15 1,508.72 2,870.34 150.65 90.25 0.21 Tata 258.00 834.71 3,934.82 1425.12 371.40 0.29 Max Life 478.82 576.37 1,432.44 199.16 148.53 0.11 Axis 903.06 2,197.45 6,340.41 602.10 188.53 0.47 DSP - 115.66 1,033.08 NA 793.21 0.08 Total 10,55,149.84 11,73,535.92 13,56,237.02 28.54 15.57 100.00 Source: NPS Trust Data incl. APY Fund scheme. 28November 2024 III. Scheme Wise AUM under NPS / एनपीएस के अिं गिथ योजनावार एयूएम Table 5: Scheme-wise Assets under Management (in Crores) as of 30th November 2024/ 30 नवम्बर 2024 को योजनावार एयूएम संपवत्तया ाँ (करोड़ में) AUM (Rs. In Crore) Growth (%) Scheme Over % share 30-Nov-23 31-Mar-24 29-Nov-24 YOY Mar 24 CG 2,83,907.63 3,03,144.53 3,26,460.25 14.99 7.69 24.07 5,19,490.92 5,73,527.22 6,51,048.80 25.32 13.52 48.00 SG Corporate CG 69,213.86 77,174.94 89,729.15 29.64 16.27 6.62 A 336.30 411.38 553.34 64.54 34.51 0.04 E 60,599.66 76,999.16 1,02,493.45 69.13 33.11 7.56 TIER I C 28,342.74 34,012.02 47,866.91 68.89 40.74 3.53 G 50,702.59 60,750.99 82,680.02 63.07 36.10 6.10 NPS Lite 5,246.10 5,559.67 5,953.72 13.49 7.09 0.44 E 2,164.77 2,573.34 3,179.22 46.86 23.54 0.23 C 962.34 1,035.34 1,236.63 28.50 19.44 0.09 TIER II G 1,619.12 1,797.97 2,189.06 35.20 21.75 0.16 TTS 14.97 17.51 19.34 29.14 10.42 0.00 APY 31,976.48 35,647.67 41,882.15 30.98 17.49 3.09 Tier II Composite - - 1.83 - - - Total Asset 10,54,577.48 11,72,651.75 13,55,293.86 28.52 15.58 100.00 Source: NPS Trust Minor difference in AUM provided in Table 3 is due to difference in the methodology of calculation of asset by PFs and CRA. 29November 2024 IV. PFM-wise Return on NPS Schemes / पीएफएम के अनुसार एनपीएस योजनाओं पर लाभ Table 6: Returns since inception (in %) as on 30th November 2024/ आरंभ से लाभ (% में) 30 नवम्बर 2024 िक Pension Funds→ SBI LIC UTI ICICI KOTAK HDFC Aditya Birla TATA Max Life Axis DSP CG 9.67 9.52 9.48 - - - - - - - - SG 9.40 9.48 9.45 - - - - - - - - Corporate-CG 9.44 9.54 - - - - - - - - - A 9.09 7.57 6.81 7.41 7.24 8.68 6.63 8.64 -0.13 6.99 6.04 E 11.68 13.90 13.48 13.45 12.85 15.68 14.49 20.50 17.20 18.80 24.65 TIER I C 9.55 9.02 8.72 9.56 9.26 9.31 8.41 7.49 7.65 8.09 8.32 G 9.09 9.82 8.35 8.56 8.54 9.11 8.10 8.86 9.23 9.09 10.94 E 11.75 12.14 12.25 12.21 12.41 14.20 14.64 20.43 20.08 19.61 21.74 C 9.15 8.55 8.73 9.39 8.62 8.66 7.91 7.85 8.21 7.26 9.61 TIER II G 9.10 10.04 8.84 8.62 8.31 9.24 7.52 9.05 7.96 8.41 8.79 TTS 6.48 8.40 7.06 7.80 8.45 7.15 8.76 10.16 7.82 6.42 5.43 NPS Swavalamban 9.80 9.82 9.77 - - - - - - - - APY 9.00 9.30 9.25 - - - - - - - - Tier II Composite 3.15 3.37 4.27 - - - - - - - - Source: NPS Trust 30November 2024 31