Five months after taking charge as head of the Pension Fund Regulatory and Development Authority (PFRDA), Yogesh Agarwal has decided to take measures to ‘fix’ problems plaguing the New Pension Scheme (NPS), which has failed to attract voluntary subscribers on a significant scale.
The regulator has decided to put distributors, who run ‘points-of-presence’, on notice for non-performance and de-register them if they fail to take measures to improve sales. The 40 points-of-sale, mostly banks, receive Rs 40 for every new pension account they open. According to Mr Agarwal, 90% of them have failed to perform. “If they fail to perform, we will ask them to make way for ones that are willing to,” he said.
At the same time, the regulator is considering improving incentives and getting fund managers to popularise the scheme. A committee, headed by former Sebi chairman GN Bajpai, is looking into ways to improve the distribution of NPS, which has now been rechristened the National Pension System.
When the scheme was launched a couple of years back by DS Swarup , the founding chairman, the objective was to get the scheme to work on wafer-thin margins and to structure the plan as a universal pension scheme in which even those in the unorganised sector could invest. The original corpus, however, came by taking over the government’s pension liabilities, which moved from a defined benefit to a defined contribution plan.
“When the scheme was first launched, it was only for government employees. We forgot that like any other financial product, it will have to be explained and sold. In rural areas, we are finding out that investors have to be explained why their money has to be locked in until they turn 60,” said Mr Agarwal. The awareness is so low that a decision by the government to set aside Rs 100 crore to contribute Rs 1,000 to every new account has received a tepid response. The scheme, which was christened Swavalamban, has seen only 30,000 accounts being opened since its launch in September last year. Yet, Agarwal is hopeful that PFRDA would be able to achieve the target of 10 lakh accounts during the remaining part of this fiscal.
One of the strategies would be to use technology and offer the pension plan online. On Monday, PFRDA tied up with ICICI Securities, which will offer investors the option of investing online. PFRDA has received a clarification from the finance ministry, which has accepted that due diligence done by the online brokerage will be adequate for opening new accounts and prospective NPS account holders need not go through the tedious process of providing proof of identity and address.
According to Anoop Bagchi, executive director, I-Sec, the current fees of Rs 40 for opening an account and Rs 20 per transactions are not significant. “Margins in all products are coming down and we expect pensions to grow significantly. ICICI has two million customers who will be encouraged to open NPS accounts online.
