More than three years after its launch, the New Pension Scheme (NPS) has got barely 99,082 subscribers, with a corpus of Rs 366 crore from the private sector. Pension Fund Regulatory & Development Authority Chairman Yogesh Agarwal said there were some flaws with the scheme. In an interview with Vrishti Beniwal, he said the gaps were being plugged to attract foreign investment in the sector. Edited excerpts:
What went wrong with NPS?
NPS has not taken off at all in the non-government and private sector. The test of its success is not to be judged by moblisation in the government sector, where it is mandatory. Primarily, we made a mistake in thinking that it is a ‘pull’ product. No financial product can be a pull product in this country; it has to be a push product and reach across to people. Second, we extended NPS to the non-government sector, exactly the way it was in the government sector. You can’t extend a mandatory scheme without any changes and expect people will accept it voluntarily. If it was first open to the private sector and then to the government sector, then the story might have been different.
What steps are you taking to revive the scheme?
The Bajpai committee in its report said the process of bidding for pension fund managers (PFMs) should be done away with. It also recommended allowing PFMs to sell the product and for that, the compensation they were getting should be increased. Earlier guidelines said PFMs would be appointed for three years, but which business house would like to invest in a new industry and pack his bag after three years and go off? We have stopped that. When some people tell me it’s a low cost product, I say, low cost does not mean no cost.
If PFMs felt a fee of 0.0009 per cent was not economically viable why did they quote such a low rate at the time of bidding?
If you create an artificial scarcity any bidding process will give you artificial prices. People in their anxiety to be a part of the scheme bid ridiculously low. A fresh bidding process will not result in a realistic pricing mechanism because again they will bid at those prices. If there is no bidding process in banking, mutual fund or insurance industry, why only in NPS? Ultimately, NPS has to shed this tag of being a government scheme. It has to compete on its own with other financial products. The government has done enough by supporting the scheme in initial stages.
Your recent guidelines said 26 per cent FDI is allowed in the pension sector. Then, why haven’t we seen any FDI in the sector so far?
It’s not mentioned in the FDI policy but even for existing seven PFMs stipulation was 26 per cent. Domestic PFMs will shut shops if the fee is kept so low. Why will FDI come into a sector making losses?
Do you think FDI can come now, when you have issued new guidelines?
I have received a number of queries showing interest by foreign investors, particularly from developed countries.
Is there a need to first change the mindset of the people about NPS?
There is a need for the product and nobody disputes that, but the link between the supplier and the buyer is missing. There is a need to invest in marketing channels. We conducted an internet study and found the charge ratio (savings of subscriber at retirement age after paying all NPS charges) comes to at around eight per cent even after recent changes, which is one of the lowest in the world.
A major concern is that there is no flexibility in withdrawals in NPS.
That I’m very clear won’t be there till the age of retirement. If I allow withdrawals before 60, it will meet the same fate as EPFO did and there will be nothing left for pension. If I’m allowed to blow up the pension money on marriages and colleges, then the entire purpose is defeated.
Is there a plan to rope in agents to sell NPS the way we have in the insurance sector?
All the intermediaries in the NPS design have got other irons in the fire. Banks and central recordkeeping agency NSDL have got a lot of other things to do. It’s only the PFM whose survival depends on the success of NPS. No amount of TV or newspaper advertisements can convince me to put my hard-earned money somewhere unless somebody is there to answer my queries. We have left it to the PFMs to decide on their marketing distribution channel. If they want they can get agents, set up their branches or subsidiary for marketing, or make use of their existing network.
How would you address concerns of mis-selling in that case?
Unfortunately the word agent today has got a negative connotation. The issue of mis-selling has to be addressed by regulatory oversight and not by banning agents. If somebody indulges in mis-selling we would come down heavily on him.
Can we expect PFRDA-regulated private pension funds to introduce more products in future that would compete with NPS?
Yes as the pension products grows competing products will come up but that is so much in the future. There is a talk that they should allow EPFOs to move from the pension scheme of EPF to NPS.
If an insurance company or a mutual fund is offering a pension product who would regulate that?
It will be their sector regulator. But no insurance company is offering pension products now. They have all stopped. I must say NPS is such a beautiful product that nobody will look at other products.
Do you plan to have another recordkeeping agency?
There is no need for it now because the volumes are so low. What people think is that having a second agency would drive down costs, but as it is by the process of negotiation with the existing agency, we have been able to make them reduce costs substantially from what they won the bid at. With this agency, the complaints have been negligible, but I’m not too sure when I appoint a second agency if the complaints of poor service or lack of response start pouring in. I don’t want to risk that at the moment. We will explore the idea when I’m more confident about the whole system and once volumes are there.