PFRDA is addressing marketing and distribution issues: Yogesh Agarwal

Interview with Chairman, PFRDA

The New Pension System (NPS) has failed to meet its objective of catering to the non-government sector, which accounts for 87 per cent of the country’s population. Pension Fund Regulatory and Development Authority (PFRDA) Chairman Yogesh Agarwal, in an interview with Santosh Tiwari, outlines the initiatives through which the regulator expects the situation would change. Edited excerpts:

Despite the introduction of the NPS, there is still a huge gap between the requirement and what is offered in the pension market. How do you plan to bridge the gap and what are the challenges before you?
Marketing and distribution issues are the biggest challenges. The scheme started with the government sector and was extended to the non-government sector without actually carrying out some basic issues. The fact that in the government sector it’s a mandatory scheme but in the private sector, it has to be sold like any other financial product was forgotten. To address marketing and distribution issues, you have to address incentivisation. Today, as the NPS is structured, nobody is there for the marketing role. We have started addressing these issues now. We have already revised the incentivisation structure for the points of presence. The new fee structure for pension fund managers (PFMs) would be a game changer. We will put a cap on the fees to be charged by PFMs and then, market forces would take care of the rest.

But then, people would have to pay the fees. Would that not be an added cost?
Yes, but unless you increase the fess and people who want advice pay for it, how would they get it? Who would get them the advice? PFRDA or the government cannot do that. It has to be an intermediary. It is a financial instrument and somebody needs to explain this to people. You can’t eliminate the intermediary. In all other products—banks, insurance and mutual funds—there is a fee structure everywhere.

What has been the response to the NPS?
There is hardly any response from the private sector. Currently, of the three million members, more than 90 per cent are from the government sector. People know about the NPS, but they don’t know how to open the account. We are expecting with the fee structure for PFMs, marketing and distribution issues would be addressed and it would take off vertically.

How would you address the issue of fixed returns in NPS?
PFMs would explain the product to people. The investor has a choice. If he doesn’t want to invest in equity, he can do that and opt for investment only in government securities, in which he would get fixed returns, even if these are low. But to get good returns, you will have to play the market. It has to be part of the financial education that risk and returns are co-related. Compared to others, we have been offering superior returns. Since inception, our average return has been 12.5 per cent, which is far superior to any other financial product in the country. And, it is so because we had been investing in equities. The major part is still in debt, but the part which we invest in equity has allowed us to offer better returns.

Don’t’ you think there should be a coordinated approach, as far as subscribing to NPS and the Employees’ Provident Fund (EPF) are concerned?
I believe the government is already taking a look at this, and is considering offering the option of whether they want to opt for NPS to employees currently under the EPF.