Make the NPS compulsory, if it has to take off
Suddenly, there’s seems to be an abundance of people who are eager to write off the New Pension System (NPS).india Updated: Nov 22, 2009 20:28 IST
Suddenly, there’s seems to be an abundance of people who are eager to write off the New Pension System (NPS). Everyone’s favourite statistic is the laughably small number of people (2,500 or so) who have actually, of their own free will, enrolled in the NPS. But this number doesn’t tell you anything about the NPS. What it does tell you that the NPS today is like a product that has been designed but exists only in the design labs. It hasn’t yet been launched in the market.
Moreover, the 2,500 members are a miracle; of the many entities that are supposed to be selling NPS, some are ignoring it completely, while others are actively de-selling it. It is a product without a seller, and the way the world works, for all practical purposes such a product doesn’t really exist.
People who have first-hand experience of marketing financial products doubt if NPS would actually create participation without a structure that creates more profit for the seller than do competing products.
It’s possible that the NPS’s future lies in being a mandatory saving, like practically every retirement savings solution around the world.
Under the circumstances, the most significant step would the replacement of the EPFO with the NPS for the private sector.
As things stand, the government’s pension money is being managed by the private sector (the NPS’s fund managers) and the private sector’s provident funds are being managed (though managed is not the right word) by the EPFO.
Moving the private sector to the NPS is an urgent need. This would free employees from struggling with the phenomenally hostile service quality of the EPFO, and could encourage many more businesses to come into the pension fold.