In order to give the citizens of India access to another investment avenue to plan for their retirement, the Government launched the New Pension Scheme (NPS) in May 2009. The structure of the NPS included the regulator – Pension Fund Regulatory & Development Authority (PFRDA), a trust set up under the Indian Trusts Act, 1882, 22 Points of Presence (PoP) acting as first point of interaction with the subscribers, NSDL as the central record keeping agency, six fund managers – State Bank of India, UTI, ICICI Prudential, Kotak Mahindra, IDFC and Reliance to choose from, and Bank of India as the trustee bank. On the face of it, the structure of the NPS did appear to be a rewarding one.
But the NPS did not meet with much success in attracting investors into the scheme – mainly due to lack of awareness of the scheme, although the NPS had the lowest fund management charge of 0.0009%. The scheme failed to take off even after 3 years of its existence.
Thus now showing concern about the future of NPS, the pension fund regulator – Pension Fund Regulatory and Development Authority (PFRDA) issued a revised set of guidelines (as per the recommendations of the Bajpai Committee) for registration of Pension Fund Managers (PFMs) to manage the NPS for the non-government and private sector.
The revised guidelines have done away with the earlier bidding process, wherein a pre-determined number of slots were bid for by the fund managers thereby encouraging all interested players desiring to enter the Pension industry to register as PFMs subject to the eligibility criteria laid down. Furthermore, the PFMs will now be allowed to prescribe their own fee charges, subject to an overall ceiling to be laid down by PFRDA. It is expected that this would provide for an economically viable business model for the PFMs attracting a fresh set of entrants into the pension industry, and the resultant competition would ensure market driven fee structures, which would work to the advantage of the pension subscribers. The PFMs would also be expected to market the National Pension System (NPS) to the potential subscribers, deciding their own marketing and distribution channels as per their business perceptions.
We are of the view that, the revised guidelines for the New Pension Scheme may not be able to achieve its goal of attracting more subscribers to the NPS. The increase in the number of fund managers may not necessarily increase the low subscriber base of the NPS. Another aspect which needs attention is the functioning of the marketing and distribution channels in the hands of the PFMs. This may lead to mis-selling as there needs to be proper checks and balances laid down while selling the NPS to customers.
The PFRDA needs to recognise that the demand for NPS among the customer base is quite low. Most of them aren’t aware due to lack of promotional and awareness activities undertaken by PFRDA or the distribution channels. Transparency in the form of disclosure of the performance of the NPS and its portfolio at regular time intervals may help create confidence in the minds of the customers.