EPFO-NPS turf war: Companies tread neutral ground

The Employees' Provident Fund Organization (EPFO) and the National Pension System (NPS), the two pension scheme operators in the country, seem to be heading for a turf war. The NPS is wooing subscribers from the private sector, earlier a domain of the EPFO.

NPS has reported so far, 522 private companies, including Reliance Industries Limited (RIL), Reliance Group, Colgate Palmolive, Cognizant, Capgemini, Pantaloons and Wipro, have opted for it.

However, companies have chosen to remain neutral in their stance. For instance, Wipro told Business standard its relationship with NPS didn't mean an end to its EPFO membership. "NPS is over and above the mandatory contribution towards EPF," said Samir Gadgil, general manager and global head (compensation and benefits), Wipro Technologies. He added for Wipro, NPS was introduced in July 2011, and this was voluntary. (SECURING THE FUTURE)

Annual NPS funds from Wipro vary according to the contribution amounts opted for by individual subscribers. On an average, annual contribution stood at Rs 4-6 crore, Gadgil said.

For RIL employees, too, NPS membership is voluntary. In Delhi, the company issued a circular to its employees, asking them to choose between NPS and the company's EPFO pension scheme. An RIL employee said no staff member was being forced to opt for NPS.

Infosys said from April 1, it would introduce the NPS option for its employees. "We are looking to facilitate a process where employees can choose to have NPS as part of their retirement benefits from 2013-14," the Bangalore-based company said.

EPFO denies it has lost any of its subscribers to NPS. A senior EPFO official said, "We are not aware of any EPFO subscriber leaving us for NPS. You show us one person who has left us for NPS."

Officials in the Pension Fund Regulatory and Development Authority (PFRDA) said their system couldn't track whether companies had entirely shifted from EPFO to NPS. They, however, said a lot of private companies were showing interest in joining NPS. "Many companies from the private sector have joined NPS. But we can't track from where the money is coming. NPS has the advantage of lower costs and higher returns," said PFRDA Chairman Yogesh Agarwal.

EPFO gives 8.5 per cent returns to subscribers. As of August-end, 2012, returns offered by NPS stood at six-11 per cent.

Recently, Finance Minister P Chidambaram had exhorted private companies to promote NPS, a call that led to discomfort within EPFO.

Analysts say the scales tip in favour of EPFO, as it offers guaranteed returns, unlike NPS. For investors, the primary aspect was security and EPFO had the most reliable fund, said financial analyst Amit Sethi of AMVI Financial. He added the difference in rates wasn't significant. The government wouldn't want to harm EPFO, which had a bigger subscriber base than NPS, he said.

EPFO's recent announcement of investment in private bonds, as well as a more aggressive entry into the bond market in general, pointed to better returns in the future, Sethi said. In two years, EPFO returns would stand at 8.75-9.25 per cent, while NPS returns weren't expected to see such a rise, he said, ruling out a threat to EPFO.

While EPFO has a corpus of Rs 4.5 lakh crore, in four years, NPS has raised only Rs 28,493 crore. On an average, EPFO adds Rs 50,000 crore to its corpus every year.

EPFO is pushing for an amendment to the EPF Act to raise the salary ceiling for employees from Rs 6,500 to Rs 10,000 or Rs 15,000. This would ensure the scheme is attractive to those earning high salaries as well. EPFO is mandatory for those earning up to Rs 6,500 a month; for the rest, it is voluntary.