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The New Pension System (NPS) is all set to open for subscription to the unorganised sector from April 1 this year. This scheme has generated a lot of interest. D. Swarup,chairman,Pension Fund Regulatory and Development Authority (PFRDA),in an interview with Suneeti Ahuja talks about the nuances of the scheme,and its advantages and disadvantages vis-à-vis other pension products
available in the market.
The New Pension System for private and unorganised sector will be open from April 1. Who will manage the funds?
The Pension Fund Regulatory and Development Authority (PFRDA) board has chosen six fund managers. They are UTI Retirement Solutions,ICICI Prudential Life Insurance,Reliance AMC,SBI Pension Funds,IDFC AMC and Kotak Mahindra AMC. UTI Retirement Solutions had made the lowest quotation bid at 0.09 basis points. The rest five players have agreed to match this quotation.
How often will investors be allowed to switch between fund managers or investment options?
Switching,whether it is for another fund manager or another fund option,will be allowed between April 1 and 15 every year only. We will release the net asset value (NAV) of all funds every year on April 1 so that investors may be able to take informed decisions.
In the beginning,we want to be a bit conservative in this regard,and we do not want to allow too many switches. I believe fund managers should be given enough time to optimally manage the funds given to them.
How often will you revise the charges?
The contract with CRA is that if volumes increase,the cost will go down. For the first 10 lakh accounts,the CRA will charge Rs 350. If the number of accounts goes beyond 10 lakh,the CRA charge will come down to Rs 280. The transaction charge too will come down to Rs 6. And once we have 30 lakh accounts,the CRA charge will come down to Rs 240 and transaction charge to Rs 4.
While pension products by life insurers have EET treatment,you are pitching for EEE treatment for NPS. Why so?
I understand that even they are asking for EEE treatment. If they get it,we get and vice-versa. But I am not asking for EEE benefits. All I am asking for is a level playing field. If all the products under EEE (read PPF,EPF and GPF) are brought under EET,I have no problems at all. We should not have tax disadvantage. Long-term contractual savings like the NPS deserve the most preferential tax treatment. But I am not demanding the most preferential treatment,only same tax treatment.
Tied agency has been instrumental in increasing the life insurance industrys penetration. But you are not willing to use this channel. Why?
Financial illiteracy is the biggest challenge we face. We have a long haul before us. We begin with several disadvantages: tax treatment and financial illiteracy. Tied agents are costly. Most importantly,I want to avoid any mis-selling. I am not that concerned about the growth of AUM but about mis-selling. Information will be provided by PFRDA to investors at PoPs. We will go aggressive in our marketing with a direct selling model.
NPS for government employees will complete a year in April. What have been the returns generated so far?
Through provident fund employees were getting around 8 per cent returns. In our case,for the first nine months,the fund managers have been able to generate 10 per cent plus returns.
After the Parliament passes the PFRDA Bill,will all pension funds offered by life insurance and mutual funds come under the purview of PFRDA?
The intention of the government is to bring all pension plans operating in the country under one regulatory umbrella,which in this case will be PFRDA. But that will only happen after the PFRDA Bill is passed by Parliament. u