On NPS,govt focus is more on low cost than service: PFRDA chief

Despite being in existence for more than two-and-half years,the New Pension Scheme,opened for the non-governmental sector with much fanfare in May 2009,has failed to take off

Despite being in existence for more than two-and-half years,the New Pension Scheme,opened for the non-governmental sector with much fanfare in May 2009,has failed to take off. While,the government wants to sell the NPS as a low-cost long-term retirement savings product,Pension Fund Regulatory and Development Authority PFRDA Chairman,Yogesh Agarwal,in an interview with Ritu Kant Ojha says that the cost of NPS is so low that is it virtually free,a syndrome which is not correct. If it is free,nobody will sell it. The mentality of the government,it seems,is mainly on lowering the cost without giving importance to services the marketing and distribution related issues,he says. Excerpts:

What is the PFRDAs take on the recommendations of the GN Bajpai Committee on ways to popularise the NPS?

We have more or less accepted the recommendations of the committee. They have suggested that we free up the pension sector and incentivise the players in a better way.

The suggestions of the committee hints at moving away from the current bidding process for pension fund managers PFMs. What is PFRDAs view on that?

Our view is that any fund management company meeting the criteria set by us would be free to quote its fees and go to the customers with their track record and fee structure. So the customer will have a choice.

What have been the PFMs views on the current incentive structure?

The PFMs say that the low fee structure is not economically viable. Why would any corporate entity enter the pension fund business,many ask.

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When is the new incentive structure likely to be announced?

We are in the final stages of approving the new incentive structure and charges. Soon you will see the recommendations getting implemented,one by one. Within next 15-30 days we will announce the new structure.

It has been said that the annual maintenance fee charged by Central Recordkeeping Agency CRA appointed by PFRDA is high. Are you looking at appointing other CRAs to bring down the cost?

I do not understand why it seems costly to people. If one maintains a depository account,it costs Rs 500-700 per annum and nobody complains. CRA is typically the backbone of the entire system. The entire low-cost syndrome is not correct. This L1 mentality term used for selling a product with the focus on lowest common denominator of the government focuses more on lowering the cost without giving much importance to services. There might be 10 other CRAs who would be ready to charge Rs 50,but what about their service? Let them first achieve the technical capability. And when we reach several crore subscribers we will then think about it.

What do you think went wrong with the NPS?

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The fundamental mistake was that we put the cart before the horses. The government scheme was the first to come out in 2004. It was a mandatory scheme where the employee did not have a choice. In 2009,when we extended this scheme to the non-governmental sector,where an individual could opt for a NPS account,we overlooked the key point of marketing it first. We forgot that it is a voluntary scheme. NPS is a financial product and has to be sold like one. Somebody has to market it,somebody has to distribute it. We killed the marketing and distribution efforts by going in for a bidding process of pension managers. And when we said we were quite happy that it is a low-cost product,it is so low that it is virtually free. It is 0.0009 per cent. If it is free,nobody would sell it.