Pension fund managers devise new strategies to attract youths to NPS

HDFC Pension Fund also been finding it difficult to enrol people in younger age-bracket

Four months after the Pension Fund Regulatory and Development Authority (PFRDA) Bill was passed, fund managers in this segment have seen a marked increase in number of youngsters applying for pension policies. Still, attracting young professionals has continued to be a challenge for these companies.

The pension fund managers distribute products under the National Pension System (NPS). The NPS is a new contributory pension scheme launched by the government and is regulated by PFRDA.

Under the NPS, you can regularly invest your money into your pension account and have an option of taking a part of the corpus as lump sum amount and the balance in the form of fixed monthly income. It was first introduced for government employees, and later for all citizens of India.

STRATEGIES ADOPTED TO TAP YOUNG PROs

• Introducing the scheme through educational sessions
• Use of audio-visual methods to create awareness about its benefits
• Investing in technology to make subscription to NPS easier and making it more accessible
• Using digital media initiatives in a relateable manner

WHAT MORE COULD BE DONE

• Changes in technology interface
• Taxation changes
• Enrolment process should also be made simpler

Though there is a tax benefit under Section 80C of the Income Tax Act, younger employees in the age-group of 25-35 years do not want to purchase the product. The major reason attributed by the industry players for this, is that these professionals do not want to think about retirement at an early age.

Sumit Shukla, chief exectuive officer of HDFC Pension Management Company, said only employees in middle and senior management positions mostly opt for the products.

"To attract younger talent to NPS, we tied up with BPOs, since they have a relatively younger employee mix. Here, about 40 educational sessions were held where schemes were introduced to employees. After this, we had about 125 forms coming in for joining NPS," said Shukla.

The company is also investing on technology to make NPS easier to subscribe to and more accessible. To subscribe to NPS, one should be between 18 and 60 years of age as on the date of submission of his application to the point of presence (POP) / POP-service providers.

POP is the interface between the corporate/subscribers and the NPS architecture. POP-SPs are the designated branches of registered POPs to extend the reach of NPS.

In order to invest in an NPS, it is mandatory for an individual to open a tier-1 NPS account where withdrawal is not allowed. However, after opening the tier-1 account, you can start a tier-2 account where partial withdrawal is allowed. Up to 20 per cent of the funds can be withdrawn from NPS before one turns 60; the rest has to be used to buy annuity.

The thrust is also on digital media initiatives. Anil Ghelani, Business Head and Chief Investment Officer, DSP BlackRock Pension Fund Managers said that their marketing strategy is aiming to build a strong connect with the young generation.

“Recognizing that wealth creation including saving for retirement is a long term process and it needs to start at a young age. Connecting with the youth thus is essential for introducing and educating them about investment products traditionally considered by more mature audiences,” he said.

At DSP BlackRock Pension Fund Managers, they are focusing on digital media initiatives. Ghelani added that even the team at DSP BlackRock working on this business is constituted of primarily young individuals that can help take out the message in a much more relatable manner.

The Pension Fund Managers for Government Sector NPS are LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions.

The Pension Fund Managers for Private Sector NPS apart from the above three are HDFC Pension Management Company, ICICI Prudential Pension Funds Management Company, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund Ltd and DSP BlackRock Pension Fund Managers.

Apart from these initiatives, industry players feel that changes in the technology interface would also be essential to get youth interested. They informed that further taxation changes would also be welcome, given that the pension earned after retirement is taxable at slab rate for NPS.

A senior official from a pension fund manager operating in the NPS space in both private and public sector said that the enrolment process should also be made simpler.

“Similar to products like insurance and banking, online processes would be more effective in getting people of a young age interested. Further, mobile applications to purchase NPS and check its fund value on a regular basis would be beneficial,” the official added. He also said that the industry is looking to bring out simpler enrolment forms that only have four to five basic questions.

At present, online purchase of NPS is not allowed. However, sources indicated that the finance ministry and PFRDA are considering this proposal seriously and changes could be made to facilitate it in the near future.