India's National Pension System and Central Board of Trustees of retirement fund body EPFO stand imperiled due to the toxic nature of the IL&FS bonds it has exposure to. Innumerable NPS funds have exposure to these bonds
While the government continues to hardsell NPS as a perfect solution for retirement planning providing old age income with reasonable market-based returns, based as it is on a unique Permanent Retirement Account Number (PRAN) allotted to every subscriber for NPS, it is contaminated by the bonds.
What makes it worse for the BJP government trying to get itself re-elected is that Central Board of Trustees EPF too has exposure to the same virus-infected bonds. Both NPS and CBT have skin in the game which is not good news for the government. The amounts vary here as well but CBT EPF 11 B DM has an outstanding exposure of Rs 147 crore while CBT EPF 25 B DM has an exposure of Rs 200 crore.
Another CBT EPF 5 C DM had an exposure of Rs 181.81 crore. The Central Board of Trustees (CBT) of retirement fund body EPFO has in the past turned down the proposal to reduce the mandatory contributions from workers and employers to 10 per cent. Employees and employers contribute 12 per cent of basic wages each towards Employees Provident Fund Scheme (EPF), Employee Pension Scheme (EPS) and Employee Deposit Linked Insurance Scheme (EDLI).
The contributions invested in NPS are managed by eight Pension Fund Managers (PFM) appointed by PFRDA. The Subscriber can choose any one of the given entities: HDFC Pension Management Company Limited, Reliance Capital Pension Fund Limited, UTI Retirement Solutions Limited, Kotak Mahindra Pension Fund Limited, LIC Pension Fund Ltd, SBI Pension Funds Private Limited and ICICI Prudential Pension Funds Management Company Limited.
Subscribers have the option to select allocation pattern for their investment across various asset classes. The subscriber has the freedom to design the portfolio among 3 asset classes: Equity (E): This is a 'High risk – High Return' option as the funds are invested in equity a subscriber can choose to invest up to 50% in this class; Corporate Bonds (C): Funds are invested in fixed income bearing instruments which offer medium returns and government securities;(G): Funds are invested only in government securities. It is important to give this background for IL&FS bonds were 'triple A' rated and considered best of breed till the meltdown began.
Pension Fund Regulatory and Development Authority (PFRDA) that regulates the National Pension Scheme (NPS) expects assets under management (AUM) to touch Rs 2.85 lakh crore in FY19, from Rs 2.3 lakh crore in the last financial year. This is a significant number. IANS which has been at the vanguard of exposing the problems with IL&FS bonds has now discovered that NPS too has large investments in these toxic bonds:
NPS Trust - A/c UTI Retirement Pension Fund scheme - Central govt: Rs 10 cr
NPS Trust - ditto - state govt: Rs 4 cr
NPS Trust - ditto - central govt: Rs 10 cr
NPS Trust - ditto - C Tier 1: Rs 0.10 cr
NPS Trust - ditto - state govt: Rs 9.80 cr
NPS Trust - ditto - NPS Lite scheme Govt pattern: 0.10 cr
Over 75 such entries were found with amounts varying from a high of Rs 110 crore in one case to Rs 75 crore in two cases and others ranging between Rs 10 lakh to Rs 10 to Rs 15 crore to several entries of Rs 20 crore to Rs 19.50 crore to Rs 14.36 crore to many of Rs 15 crore each. Also there are entries of Rs 40 crore, Rs 50 crore, Rs 28 crore, Rs 35 crore. As a norm they are for central and state govt employees who had joined the NPS. Ballpark, it is in excess of Rs 1,200-crore exposure.