'Market forces will have to incentivise pension schemes'

Sarbajeet K Sen and Chandralekha Mukerji    Delhi     Print Edition: October 2011

The National Pension System remains unpopular even two years after it being open to the public. Yogesh Aggarwal, Chairman, PFRDA, talks to Sarbajeet K Sen and Chandralekha Mukerji on the road ahead.

The NPS did not catch the imagination of people during the initial days. Are you seeing any change?
The response is the same. In the non-voluntary sector, it is unpopular because of some basic issues, which have to be sorted out. We have to take a view on theG.N. Bajpai Committee report (that studied ways to improve the NPS) that has just come to us. Once we address these issues it should take off.

Where do you think NPS went wrong?

When we introduced this scheme for the government sector, there was no need to market it as it was mandatory for new government employees. The fundamental mistake we made was that when we decided to extend it to the non-governmental sector, or the unorganised sector, we introduced it without modifications. We did not realise that there had to be marketing and an incentive for people to market it in the unorganised sector. That's why it did not take off. Therefore, we had to constitute the Bajpai Committee to look into ways to improve the structure.

Can the awareness level on NPS be increased within the present structure?
How will there be increased awareness when nobody is selling the scheme?

What is the status of the Bajpai panel report?

We received it about a month ago and are processing it. The major issues the panel has addressed are regarding the fee structure and how the present structure does not provide an incentive to market the scheme. The investment pattern was not even among the mandates of the committee.

Doesn't the PFRDA have a fund to promote the NPS?
We do have a fund. However, the market forces have to play their part. The regulator can only play a limited role in popularising the scheme and the question of sustainability comes in. No regulator popularises schemes. It simply cannot. It is ultimately the market forces that have to incentivise and market a scheme. Being an arm of the government, the regulator's role in marketing a scheme is very limited. That's one reason why the scheme has not been able to fulfil its promise.

"Since there is so little selling being done, how can there be complaints of any mis-selling?"
So, as of now, it's in limbo and it will remain like that till a view emerges on the Bajpai Committee report?
Yes, as fund managers aren't getting a management fee, they are not interested in marketing the scheme. We will soon take a view on the Bajpai Committee report on changing the structure of NPS and thereon things will hopefully move forward.

Have you set any time-frame to decide on the panel's report?
No. As I said, the Bajpai Committee report was received by us only a month back. We have also collected public comments on it and are now processing it and will be making the necessary changes.

One of the things the committee has suggested is the need to ensure protection of a subscriber's capital over the period of accumulation. What are your views on this matter?
We have just received the report and are still processing it. I will not be able to give my views at this stage.

The panel also spoke about mis-selling of the scheme. Have there been complaints of such nature or did the committee pick up the issue on its own?
Since there is so little selling being done, there haven't been any complaints of mis-selling. What the committee has said is the structure in place should ensure that there is no mis-selling. The panel has said that in the process of changing the fee structure, we shouldn't change it in such a way that mis-selling is encouraged.

The PFRDA had recently called insurers for expression of interest with the aim of selecting an annuity service provider under the NPS. What are your expectations from them?
We have given them several options for designing the annuity schemes. We would like them to see it and then tell us what they would be able to do for us. We are waiting for their response.

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Would you need to have a dialogue with the Insurance Regulatory and Development Authority regarding this?
We had written to Irda about this earlier but their response has not been very positive. That is why we had decided to invite expression of interest directly from insurance companies. Unfortunately, the annuity market in India is not very strong with almost 95% of the market being covered by LIC and the others not offering very much. So, we have been arguing for a need to look at ways to develop the annuity market in India and diversify the service providers.

If we look at the NPS subscriber numbers, corporate sector numbers are pretty low? What is the reason for this? Do you plan to do something to improve their participation?
The corporate sector is bound by the Employers' Provident Fund Organisation (EPFO). The law of the country says that they have to mandatorily go for the Employee Provident Fund (EPF). Hence, this scheme will be over and above the EPF and not in lieu of that. Therefore, only a few corporates have expressed their desire to opt for this scheme.

We are saying that it is time that the government gave the option to the organised sector on whether they want to stick to EPFO or if they would they like to opt for the NPS. But that requires coordination between two ministries as the EPFO comes under the realm of the labour ministry. Unless some ideas develop on those lines, the NPS will not see very much of the corporate sector.

But another area that we would now advice the corporates on, following the recent budget tax-treatment changes (that up to Rs 10,000 salary, over and above the limit of Rs 1 lakh, as under the 80C, is exempt), is to work within the compensation structure that they are paying to their employees. If they restructure their system and show it as an addition to the NPS, then they will be eligible for an additional tax benefit.

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