Pension Fund Regulatory and Development Authority has been functioning as an interim regulator since 2003 and has facilitated rollout of National Pension System (NPS) for employees in the public and private sectors, and even for workers in the unorganised sector. While the passage of the Pension Bill in Parliament will instil investor confidence in NPS, PFRDA chairman Yogesh Agarwal tells Raj Kumar Ray and Saikat Neogi how a market-linked defined contribution scheme can help subscribers reap higher returns from their savings and reduce the pension burden of the government.
Starting with new recruits in central government since 2004, the NPS has been rolled out for states, PSUs, private firms and even individuals. What’s the potential of the pension sector and how does the scenario change after the passage of the PFRDA Bill?
The potential for pension coverage is vast. We still have 88% of the population without any pension cover. Although the NPS corpus is doubling every year, we can’t put a limit as to how much the corpus will grow in the coming years. Most of the states have joined NPS as they have realised that they can’t sustain their pension liability (under the old ‘defined benefit’ system). Apart from the central and state government employees, 926 companies have joined NPS since December 2011.
With statutory status (following the passage of the PFRDA Bill), investors will have greater confidence in NPS. We already have a hold on pension fund managers (PFMs). But the Bill gives us more powers to regulate the sector through steps like imposing penalties on errant PFMs.
Considering that a vast majority of workers in the unorganised sector are without pension cover, will the focus be on spreading NPS among individuals and corporates? What strategy are you adopting to ensure that?
Yes. The focus is on individual and corporates. That’s why we have given the role of marketing to fund managers. It is wrong to expect banks to market the pension products. So we have increased the fees of PFMs to make it attractive for them to sell pension schemes. Beyond that, it will increase the charges.
NSDL enjoys a monopoly status as a central record keeping agency (CRA) and it is alleged that this has prevented further reduction in charges. Is there a case for appointing more CRAs to foster competition and reduce charges?
CRA charges have come down over the years. As the corpus grows, the CRA charges will come down