NPS: world's cheapest pension scheme set to turn dearer
Within 15 months of the launch of the New Pension System, the Pension Fund Regulatory and Development Authority (PFRDA) has decided to restructure the scheme because it is not moving forward. HT reports.business Updated: Aug 03, 2010 23:29 IST
Within 15 months of the launch of the New Pension System (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has decided to restructure the scheme because it is not moving forward.
The poor response for the scheme among employees of private firms and the unorganised sector and its weak incentive structure for fund managers to push the product has prompted the regulator to overhaul the scheme.
"The fee structure for pension fund managers is so low, it's almost like free. For every account, they make losses at current levels," PFRDA's Chairman Yogesh Agarwal told Hindustan Times.
The regulator has set up a committee headed by G.N.Bajpai, former chairman of the Securities Exchange Board of India (SEBI) and the Life Insurance Corporation (LIC) to suggest ways to improve the reach of NPS in its intended segments.
"Unless we address these issues change the NPS from a bought product to a sold product and provide people enough incentives to go out and sell it, it is not likely to take off," he said.
The total NPS corpus is at present just Rs 20 crore and each pension fund manager has a corpus of Rs 1 crore to Rs 2 crore, he said.
Agarwal, who took over as PFRDA chairman last June, said the idea of NPS being a better financial product because of its low fee structure had not helped push the sales.
"Beyond a point, the low fee structure becomes counter productive. You may call it a low fee product, but it is not selling at all," Agarwal said.
NPS expenses are as low as 0.0009 per cent a year, and its fund management charges are the lowest in the market when compared to mutual funds and insurance schemes.
"Obviously the incentives have to go up from the current levels (but) they need not become as expensive as other products," Agarwal said.
"The current status is not desirable, and the other extreme is also not desirable. The committee will suggest the optimal solution. I would expect the committee to submit its report in a month or two," Agarwal said.
NPS started off as defined contributory scheme for new government employees in 2004. It was later extended to the private sector in May 2009.
"In making the scheme applicable to the non-government sector, not enough thought has been given to selling and making people aware of the product," Agarwal said.