NPS introduces push factor to boost sales

Incentive for distributors fixed at 0.25 of contribution

To give a leg-up to the National Pension Scheme,the regulator for pension funds has changed the incentive mechanism for distributors by fixing it at 0.25 per cent of the contribution made by subscribers,subject to a ceiling of Rs 25,000. At present,the distributors are allowed to charge only Rs 20 every time a subscriber contributes to the scheme. This is one of the main reasons the NPS has failed to take off since it was opened up for all citizens in May 2009.

The change in the distribution structure comes from the belief that the NPS too need to be pushed and sold to prospective customers in a manner insurance plans and mutual fund schemes are sold by financial intermediaries.

Yogesh Agarwal,Chairman,Pension Fund Regulatory and Development Authority PFRDA,has long been pushing for a complete overhaul of the way NPS is sold. In a recent interview to The Indian Express,he had said the product was essentially good,but nobody was willing to sell it since the incentive was too low.

According to the new structure announced by PFRDA,a subscriber needs to pay an initial registration charge of Rs 100 and an ad-valorem transaction charge of 0.25 per cent of the initial contribution amount subject to a minimum of Rs 20 and maximum of Rs 25,000. There would be charge of 0.25 per cent of the amount subscribed by the NPS subscriber on every subsequent contribution,again subject to the Rs 25,000 limit.

The new structure is applicable to both individuals and private sector companies. According to PFRDA,it is expected to sufficiently incentivise the points of presence PoPs to actively participate in the opening of NPS accounts and also provide improved services to account holders. PoPs are banks or other financial institutions where a customer can purchase an application form for subscribing to the NPS and also make payments. In the new structure,prospective customers can negotiate with PoPs the charges.

The PFRDAs new incentive structure follows from the recommendations of the GN Bajpai Committee report. The Bajpai committee was set up in August,2010 to suggest remedial steps to make NPS a viable pension scheme for all stakeholders. It submitted the report in July,2011.

The Committee had observed that a flat rate structure amounts to poor subsidising the rich,and a more equitable structure would be charging of fees on ad-valorem basis. It recommended a rate of 0.5 per cent of the NPS subscription raised,subject to minimum of Rs 20 and maximum of Rs 50,000.

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Currently NPS is virtually free. If it is free,no body will sell it. Unless you increase the incentive,no body is here for a charity, Agarwal had said. NPS has 25 lakh subscribers,mostly government employees,and a total corpus of about Rs 10,000 crore.