The Pension Fund Regulatory and Development Authority (PFRDA) is set to introduce a fee structure for pension fund managers soon. This, it feels, would be a game-changer, extending the New Pension System (NPS) to 87 per cent of the country’s population, mostly in the non-government, or private, sector.
PFRDA chairman Yogesh Agarwal told Business Standard the regulator was discussing the move with the government and it expected the clearances for implementing the proposal come soon. “It can happen any day,” he said, adding, “For the private sector, the Bajpai Committee has not recommended any fee. What we are proposing is we will fix a cap below which individual pension fund managers can quote their individual fees.”
He said market forces would take care of the cost factor associated with the whole process. “What we have proposed is pension fund managers would be appointed, subject to a due diligence process, and once they are in the business, they can quote their own fee and approach the customer with advice. They can quote their fee structure and their yield track record, and the customer would decide which pension fund manager he would opt for,” he added.
Of about three million NPS members, 90 per cent are from the government sector.
The PFRDA chairman said the reason why NPS was not successful in attracting people from the non-government sector was the same scheme that was introduced for government employees had been extended to the private sector, where it was not mandatory.
The biggest challenges the NPS, in its current form, faces are marketing and distribution issues, said Agarwal, adding the scheme had to be sold like any other financial product, with marketing and promotion. “To address marketing and distribution issues, you have to build incentives. In the current structure of the NPS, nobody has a marketing role to play.”
“Our job is to see the profits are reasonable for stakeholders and there is no miss-selling. Unless you incentivise pension fund managers and allow them to start looking at multiple channels for marketing and distribution, there is no way we can reach out to people for whom it is intended,” he said.
The Bajpai Committee, in its recommendations, had said marketing and distribution had to be more active and aggressive and for that, the incentive structure had to be looked into.
The PFRDA has already revised the incentive structure for points of presence. With the new structure for pension fund managers, it expects vertical growth in the number of NPS subscribers.