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The National Pension System (NPS) that has Rs 58,000 crore assets under management (AUM) in India might soon not only make its products available online but also offer additional investment opportunities for fund managers. This would increase penetration, according to private pension fund managers.
Sumit Shukla, chief executive officer, HDFC Pension Fund, said more private sector employees should be encouraged to go for these products, as they are the cheapest investment options with a large additional tax benefit of above the Rs 1.5 lakh under Section 80C. He said making it available online could make a difference in increasing penetration.
The Pension Fund Regulatory and Development Authority (PFRDA) has clarified that additional tier-1 investments under Basel-III rules can be considered as debt instruments under NPS schemes, provided they are rated as investment grade by at least one rating agency.
While the total number of NPS subscribers across NPS schemes is around 7.5 million and the regulator is targeting 10 million subscribers by FY15-end, officials explained that most of the subscribers are concentrated in the Swavalamban scheme for unorganised workers and the government sector scheme, where it is mandatory for public sector employees.
The pension funds for the government sector are Pension Funds (PFs) are LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions.
Pension funds for the private sector include HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, LIC Pension Fund, Reliance Capital Pension Fund, SBI Pension Funds, UTI Retirement Solutions and the pension fund to be incorporated by Birla Sunlife Insurance.
NPS is the contributory pension scheme launched by the government in January 2004. It was made compulsory for all new government employees. Those in all non-government jobs, including those not in any organised sector, were invited to join from 2009.
While the regulator is mulling making available these products online, pension fund managers are not involved in marketing activities, since the fees are capped. These fund managers are looking to attract younger customers.
While many of these fund managers are associated with insurance companies as part of their group companies, they are not permitted to advertise their products on those of insurance company websites due to concerns of conflict of interests between pension products offered by life insurers and NPS. Insurance regulatory norms also disallow insurers from marketing other financial products apart from insurance.
Shukla said, "NPS fund managers like us are not involved in any large-scale marketing activities since the management fees are low. We are only involved in low-cost activities like sending attractive e-mailers to employees in companies to create awareness about the product, which is getting us limited success."
Another chief executive of a private fund management company explained that while the fee has been decided, the regulator could offer a common platform wherein these products could be marketed. Further, he added that bank branches with higher customer footfall should also be allowed to be used.
The industry has been placing requests with the regulator to have a wider distribution network for product sale. While points of presence (POPs) do sell the products, there have been some cases of these POP banks selling their insurance plans over NPS.
"We need individual sellers like insurance/mutual fund agents for NPS, so that there is a larger distribution network," Shukla added.
HDFC Pension is signing up 25-30 corporates every month and their employees are also enrolling under it. Shukla informed that some of the largest private employers in the country have already implemented the scheme with us and we are in the process of signing more.
However, he said what they require is the marketing effort which they cannot afford at these FMCs (fund management charges) to penetrate and get more subscribers in these corporates.
The National Pension System (NPS)'s subscriber base will see gradual growth, the Economic Survey had said.
The survey had also said the rise in the pension component of NPS (as percentage of gross domestic product) was due to the contributory scheme for fresh entrants (on or after January 1, 2004) to government services, in addition to the outgo under the earlier pension scheme.
In order to invest in an NPS, it is mandatory for an individual to open a tier-1 NPS account where withdrawal is not allowed. However, after opening the tier-1 account, you can start a tier-2 account where partial withdrawal is allowed. Up to 20 per cent of the funds can be withdrawn from NPS before one turns 60; the rest has to be used to buy an annuity.
