Money & Banking

PFRDA goes the whole hog to get subscribers to NPS

NARAYANAN V Chennai | Updated on December 02, 2019 Published on December 02, 2019

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As of October, NPS had around 90 lakh subscribers, of which Central and State government employees constitute about 66 lakh

From hosting product awareness sessions to widening its distribution channels, India’s pension fund regulator is pulling out all stops to attract individual and corporate subscribers to the National Pension Scheme (NPS).

“Our efforts are basically targeted at corporate and retail customers. Already, we have more than 19 lakh NPS subscribers (in corporate and retail), and this year we have set a modest target of adding five lakh new customers,” said Supratim Bandyopadhyay, Whole-time Member (Finance), Pension Fund Regulatory and Development Authority (PFRDA).

He was speaking on the sidelines of a ‘Workshop on the National Pension System (NPS)’ for corporates organised by the PFRDA in association with FICCI to create awareness on pension and retirement planning, basic structure of NPS and its tax benefits.

“If we approach corporates we will be able to reach out to more people,” Bandyopadhyay told BusinessLine, adding NPS is a slightly complicated product with a number of choices which need a bit of handholding and guidance.

As of October, NPS had around 90 lakh subscribers, of which Central and State government employees constitute about 66 lakh, while the corporate and retail segments account for around 19.24 lakh. NPS was made mandatory for all Central Government employees with effect from January 1, 2004. Subsequently, various State governments too adopted this architecture and implemented NPS with effect from different dates.

“In the last three years, we were stagnating at between 3.25 to 3.50 lakh subscribers. This time we have given a push to reach five lakh customers. And the way things are going, we are confident of achieving it,” Bandyopadhyay said.

“We will have a much larger target of around 8-10 lakh subscribers for next year (FY21). Now that the tax benefit is given, people are slowly understanding it and these four months (December-March) are when people do tax planning and a lot of pension products are sold in the market,” he added.

In the Union Budget 2019, the government had raised the income tax exemption limit for lump sum withdrawal on maturity from NPS to 60 per cent from 40 per cent earlier. The remaining 40 per cent of the corpus is already tax-exempt as it is mandatorily utilised for annuity purchase.

On the low awareness of the product, Bandyopadhyay said NPS is a totally unbundled product and its distribution is wholly dependent on the Point of Presence (POP) which are banks and non-banking finance companies (NBFCs). “But they (banks and NBFCs) have many third-party products like insurance, mutual funds, and home loans to sell. So, NPS may not be their only focus.”

“We are now making pension fund managers also responsible for distribution which was not the case earlier. We allowed it a few months back and four pension fund managers have already taken licenses,” Bandyopadhyay said.

Currently, NPS has seven pension fund managers. These are HDFC Pension Management Co, ICICI Prudential Pension Fund Management Co, Kotak Mahindra Pension Fund, Birla Sunlife Pension Management in the private sector, and LIC Pension Fund, SBI Pension Funds, and UTI Retirement Solutions from the public sector. PFRDA recently cancelled the registration of Reliance Capital Pension Fund after the company surrendered its NPS license.

Terming its Retirement Advisor (RA) scheme as ‘not very successful’, Bandyopadhyay said while PFRDA is taking a relook at the RA scheme, it is also exploring the option of including individuals (similar to insurance or mutual fund agents) in the distribution process with necessary checks and balances.

In a notification early this year, PFRDA permitted Central Government employees to choose their own pension fund managers from among the eight fund managers (Reliance Capital since cancelled) under the NPS. Prior to that, pension savings of government subscribers was split equally between the three public sector fund managers.

“But I do not know if they want to stick only to the public sector fund managers due to the perceived safety (factor). The initial response was very low. We have seen only about 800 people choosing to shift their fund managers so far,” Bandyopadhyay said.

On moving the legacy corpus available with the State-owned fund managers, Supratim said, “Initially, we thought it would create a problem in an illiquid security market if a large number of Central Government employees wanted to shift their legacy corpus at one point in time. But after looking at the data for the last few months, the committee has decided to allow the employees to shift their legacy funds to new pension fund managers.”

“The plan is awaiting board approval. Once approved we can go ahead,” he added.

He added that the new joinees in Central and State government services are showing a lot of interest towards the new fund managers as they are aware of the choice of fund managers available to them.

Published on December 02, 2019
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