Issues With NPS - Interview with PFRDA Chairman

source: dnaindia.com

With 40 financial institutions deployed as points of presence (PoPs) and six fund managers, the New Pension Scheme (NPS) is yet to take off. Pension Fund Regulatory and Development Authority (PFRDA) chairman Yogesh Agarwal spells out to DNA the issues with the NPS and what is expected from the Bajpai committee report. Excerpts:


What are your expectations from the Bajpai committee?
I expect it to show us the way, as there is no stake holder in the whole business today. I think the Bajpai committee will be able to tell us whether pension fund managers should be treated as stake holders or should be given a bigger role. Apart from managing the funds, they should also have a role in marketing the product and make people aware of it. For this, they need to be given incentive and the fee structure needs to be changed. Only then will we see the number of players going up from the six we have now.
How many new fund managers will be appointed?
There is no ideal number. Anybody meeting the criteria laid will be appointed.
Is there any scope of changing the investment pattern for fund managers?
Investment pattern is not a big issue with us at present.
Will revising fee structure help NPS take off or does it also need a new marketing strategy?
There is no marketing strategy, new or old. In fact, the frame of the fee structure is necessary, as they have to be seen as linked. For marketing, you have to raise the fee structure, otherwise who will market at these rates. These two are inter-linked and cannot be seen separately. Fund managers have to be given a bigger role; currently they don’t have a role in marketing. In fact, nobody has a role in marketing. If fund managers are given the marketing role, the cost involved will have to be compensated. As the functions increase, the fee structure has to go up.
Can PoPs be used for marketing?
PoPs cannot be used to market, as they are distribution channel. Its like these are banks primarily and they have much better products to market. Whoever plays the role, will need to be incentivised. Right now, with the kind of fee structure, if they sell an insurance product or a mutual fund product, they get a larger pie. To sell a pension fund they get nothing.
What kind of marketing strategy will the pension fund managers adopt?

They will have to push the product, go out and explain the product. They will have to sell the concept since people are unaware of the product. Somebody has to explain to them why it is necessary to lock their funds for say 30 years, so that you do not have to realise after the age of 60 that you have no savings to fall back on. The concept of the pension has to be sold.
What initiatives will you undertake to create public awareness?
We have prepared flyers and are distributing pamphlets. Expecting a government body to do the marketing job for you is not a proper agency. It has to be done by proper agencies. A government body will do it today, but not tomorrow.
How much corpus has been accumulated under NPS?
We have Rs6,000 crore corpus and about 10 lakh accounts.
Which states are yet to join in?
West Bengal, Kerala, Tripura and Sikkim have not expressed any interest so far.
What is the advantage of NPS over Employees Provident Fund Organisation (EPFO)?
When you leave an organisation, in most cases, the EPFO account goes defunct and as you might have read, most EPFO accounts are inoperative. In NPS there is portability and transparency. The biggest advantage in NPS is you get a plan number that you can move. You can change your employer every ten days, but your contribution will still go to the same account. Plus you get a statement of account showing exactly how much the corpus is, you can view your account online.
How safe is equity exposure in a pension fund?
You can decide that from day one whether you want 50% equity exposure or not. There is an automatic choice also, as the age increases the equity exposure reduces, but if you don’t go for automatic choice then you can decide the portion of equity exposure. Over longer periods like pension funds, the equities have shown a much higher return on an average. But risks are also there, the risk return, in fact, is much better.
Are you approaching corporates?
Yes, we are approaching corporates through Federation of Indian Chambers of Commerce and Industry and other industry bodies. In fact, two corporates have joined us recently. We got around 3000 pension accounts from them. Going forward, we expect more corporates to join.