NPS: Pension regulator,govt on collision course

The PFRDA issued a press release on January 16 stating that it was initiating the implementation of Bajpai committee recommendations. As a first step,it changed the incentive structure for distributors to ad valorem charges. Hitherto,it was fixed at Rs 20 every time a subscriber made a contribution to the fund. Now,the regulator has changed it to 0.25 per cent of the contribution made,subject to a ceiling of Rs 25,000. The Department of Financial Services said this shift to ad valorem charges was “not acceptable”.

Agarwal has now proposed to hike the fund management charge for PFMs be hiked from the current 0.0009 per cent to 0.5 per cent — a 555 per cent increase. The finance ministry has rejected this,arguing that this would defeat the idea of creating a low cost pension product in form of NPS. When contacted,PFRDA Chairman Yogesh Agarwal told The Indian Express,“We are going ahead with the implementation of Bajpai committee recommendations.” In a recent interview to the newspaper,he had said all recommendations of the Bajpai committee would be implemented. “The government’s focus on making NPS a low cost product is killing it. It shows the L1 mentality of the government — focusing only on low cost,irrespective of the service levels,” he had said. A finance ministry source said even the press release on the new distribution structure was issued by the regulator without the PFRDA board’s approval.

In fact,to pre-empt the regulator from making further changes to the NPS structure,the finance ministry has written to PFRDA raising several issues. One,it is against revision of fees for pension fund managers till the existing contract expires. The contract with six fund managers floated by Anil Ambani’s Reliance,UTI,ICICI,Kotak,SBI and LIC were inked in May,2009 and are to be reviewed after three years. On May 1,2012,the current contract with the six fund managers would end making PFRDA free to shift to a new regime. The ministry is also against registering a large number of PFMs as proposed by the regulator. “The intention is to keep the charges reasonable and keep the choices of fund managers limited to avoid confusion in the minds of financially unsophisticated subscribers,” the ministry is learnt to have written to PFRDA.

Two,the regulator is keen to let the Swavalamban Scheme (also called NPSLite meant for the poor in the informal sector with the government contributing Rs 1,000 per person opening a pension account) be distributed by multi-level marketing companies (essentially firms that build a chain of agents to sell consumer products,financial schemes,etc). The ministry is completely against MLMs being allowed since it feels that “their business model sometimes borders on illegality”.

Third,the finance ministry is strictly against allowing fund managers to sell NPS as proposed by the regulator since it feels this would result in conflict of interest. “This dilutes the USP of NPS which is unbundled architecture with full transparency of fees and charges and also creates direct conflict of interest for PFMs as they also manage the pension assets under NPS,” the ministry is learnt to have told the regulator.

Fourth,the finance ministry is keen that the Bajpai committee recommendation on appointing multiple central record-keeping agencies (CRAs) to be “implemented quickly”. Agarwal,however,is completely against appointing any other CRA as he believes “other aspiring CRAs do not have the technological capability to handle NPS”. “When we reach several crore subscribers,then we will consider any other CRA,” he said.