With the New Pension Scheme (NPS) still getting lukewarm response from investors, the Pension Fund and Regulatory Development Authority (PFRDA) is looking to introduce sweeping changes to boost the scheme.
A five-member committee to review the implementation of this scheme under the chairmanship of former Sebi chairman G N Bajpai, is likely to give its report in a month. Apart from what they recommend, policy makers have some changes in mind. “The scheme has not really taken off and there is need for a marketing overhaul. The Bajpai committee will submit its report soon, but we are of the view that certain caps, like (on) fund management charges, should be removed. Even if it can be raised up to one per cent, it will be one of the most competitive schemes,” PFRDA Chairman Yogesh Agarwal said on the sidelines of a function here today. The fund management charges for NPS are much lower than the industry average of 1.25-4 per cent.
“We are in favour of moving to a commission-based system, rather than a fee-based system,” said Agarwal.
At present, the annual fund management charge of NPS is extremely low, at 0.0009 per cent. This could be raised up to one per cent or freed up entirely, which would lead to investors choosing the fund management company, Agarwal said.
NPS is a defined contribution pension scheme, open to any Indian citizen between the age of 18 and 55. In May 2009, PFRDA had opened the scheme to all citizens; it was earlier restricted mostly to government employees. So far, the government has garnered only about Rs 5,600 crore under NPS, with about 95 per cent contribution from the government sector.
The seven pension fund managers the subscribers can choose from for an NPS account are UTI, IDFC, LIC, SBI, ICICI Prudential, Kotak Mahindra and Reliance Capital. The companies have also expressed difficulties in operating the scheme with charges as low as 0.0009 per cent.
To boost investments in the scheme, Union finance minister Pranab Mukherjee today launched Swavalamban, a form of NPS, here today. Under the scheme, the government will contribute Rs 1,000 per year to each NPS account opened in 2010-11. This will be available for persons who join NPS, with a minimum contribution of Rs 1,000 and a maximum contribution of Rs 12,000 per annum during this financial year.