Q&A: Yogesh Agarwal, Chairman, PFRDA

?NPS hasn?t taken off at all for the private sector?

Within 15 months of its launch, the newly-appointed chairman of the Pension Fund Regulatory and Development Authority (PFRDA), Yogesh Agarwal, has decided to review the New pension Scheme (NPS) for non-government employees. There is no incentive for fund managers to push the product, he tells Vrishti Beniwal and Sidhartha. He’s willing to allow them to appoint distributors and agents. The final decision will be taken after a new committee analyses the current system. Edited excerpts:

It’s been 15 months since the New Pension System (NPS) was opened for the non-government sector. The scheme has been slow. Why?
Slow is the understatement of the year. For the private sector, it has not taken off at all. The total corpus is just Rs 20 crore and each pension fund manager has a corpus of Rs 1 crore to Rs 2 crore. This product was designed with the mindset of managing the government pension fund. People forgot that in the government sector, NPS is mandated, but in the non-government sector, it is the choice of the investor. With the financial literacy levels in India, I don’t think any financial product can be (treated as) a bought product. There is a demand for it from across the society, including from poor anganwadi workers and high net-worth individuals, but it has to be sold. Internationally, pension funds are even bigger than insurance and mutual funds.

 

What needs to be done?
We have been saying that this is the lowest (cost) pension scheme across the world, but for selling the product, you need to compensate people. While extending it to the non-government sector, we needed to alter the features suitably. I have been talking to various stakeholders to find out what exactly is a good product. One of the main issues is that there is not enough incentive. Fund managers say their losses increase with every additional account they get. How do mutual fund and insurance products get sold? The basic stakeholder in all this is the pension fund manager.

But it was the fund managers who quoted low rates during bidding.
The whole bidding process could have been better, as things have gone out of control. I have told fund managers that I may free the structure, but then why should I keep it confined to six people? I will put up proper criteria and any fund manager who meets that can apply and get approved. Then you go to the investor, quote a fee and give your track record. Why should you have a uniform fee structure across fund managers? Investors will not mind paying a higher fee, provided you give better returns. To fix such issues, we are setting up a committee headed by G N Bajpai, former chairman of LIC and Sebi.

Isn’t it becoming like telecom, where the players bid for something, which they could not do and then wanted the rules of the game changed?
If the rules are skewed from the start and are not taking the scheme forward, should we stick to the rules and not the scheme be a success? Rules of the game need to be changed.

The rules do not allow the fund managers to promote the scheme. Don’t PFRDA and the points of presence have to do that?
That is a misnomer. One fund manager told this to me. I asked him to show one single sentence in any communication from PFRDA where we have said that you cannot sell. They are not selling it because they are not incentivised to do so. In fact, they will have to sell if they want the scheme to go forward.

There are some fund managers who are selling pension products through their insurance arms, where they are getting much more than what they get in NPS. Doesn’t the solution actually lie in standardising the charges?
I don’t think that comparison is correct. The solution is to fix what is wrong with pension funds.

Would you consider roping in agents to sell NPS?
We will leave it to the fund managers to decide what structure they want to use. Nothing is preventing them from using an agent even today. The focus is shifting from PoPs (points of presence) to fund managers. They can act as PoPs themselves.

Do you plan to add more PoPs?
At the moment we have sufficient PoPs (41) and if there is a need, we can increase it. We are still talking to post offices. There are some issues, such as how they will upload the data in rural areas, that need to be discussed.

Would you appoint another record-keeping agency to make it more competitive?
I have to give enough business to my existing central record-keeping agency (CRA). At the moment, the work is not sufficient even for one CRA. We will look at a second CRA when volumes grow to potential.

Do you plan to make any changes in the existing structure once the PFRDA Bill is passed in Parliament? Would you allow withdrawals in case of critical illness or loan for the first house as was planned earlier?
At the moment, we are not thinking of any such changes. The product has been designed well. There is nothing wrong with it. It is the self-distribution part of it which has gone wrong.

Who will regulate pension products of insurance companies?
In today’s world, no product can be regulated by a single regulator. Most products have hybrid features. It is an ongoing issue and the regulators will have to sort it out among themselves.

Isn’t there duplication in products offered by insurance companies and pension funds?
I don’t think they are largely the same. In pension, you have to save month by month or quarter by quarter. There is no element of saving in insurance products.

Are you getting any support from industry chambers, associations and micro finance institutions?
We have introduced NPA-Lite, where NPS will be sold to economically weaker sections of the society by engaging micro finance institutions. We are talking to various organisations on NPS-Lite. It will bring us huge numbers.