It’s going to add another powerful tool to your retirement arsenal. New pension products that will be overseen by Pension Fund Regulatory and Development Authority (PFRDA) will soon see the light of day. The regulator has already invited bids from fund houses; and 21 asset management companies have expressed a keen interest in managing the corpus. In a conversation with BT’s Manu Kaushik, the former Budget and Expenditure Secretary in the Ministry of Finance, and now, Chairman of PFRDA, Dhirendra Swarup, talks about what’s in store for you.
When do you expect the PFRDA Bill to get clearance in Parliament?
It is likely that the Bill will be taken up in the next (Budget) session of Parliament. Meanwhile, the government has authorised us, through an executive order, to go ahead and open the schemes for private sector employees. According to the current terms, we will sign contracts with the fund managers which are enforceable under the Indian Contracts Act. However, once the Bill gets passed, PFRDA will get statutory backing to impose penalties on the erring parties (fund houses).
Who will benefit from these plans?
Today, there is no pension scheme available for the unorganised sector and self-employed individuals, who constitute a major chunk of the country’s total workforce. According to a survey, around 80 million people would join the New Pension Scheme (NPS) over the next five years.
How will you distribute your products and what business model are you working on?
There will be a direct distribution model with no selling agents and no marketing overheads in our case. The scheme will be supported by a country-wide network of point of presence (POP) centres that will comprise banks, post offices and other existing channels. These centres will collect contributions from subscribers and transfer them to the designated fund managers. Since the fund managers will not have any direct contact, the point of presence centres will have an electronic connectivity with the managers.
How many products will be available to individuals?
We will be coming up with 4-5 investment options. A Deepak Parekh-led committee is deliberating this issue and is likely to submit its report soon. Products will have varying degrees of exposure to equity and fixed-income instruments. Investors will also have a default option, which will apply to the individuals who do not choose their type of asset mix.
Where and how will a fund manager invest the corpus?
There will be no individual stock picking; we are mandating that investments should be made only in index funds like—Nifty 50 or BSE 30. In the case of debt instruments, fund managers can opt for AA-rated or above corporate bonds and government securities.
The Pension Primer