Given that just 12% of Indians have any kind of pension cover, and those with a meaningful one will be a fraction of this, the GN Bajpai panel has made some important recommendations. For one, it has pointed out that government employees need to be given the same flexibility as their private sector counterparts who are subscribers to the New Pension Scheme (NPS)—while babus are allowed only a 15% equity component, this is 50% for the private sector; in addition, babus are not allowed to use private sector fund managers. But more than that, as the panel has said, the existing norms simply cannot meet pension needs. So there has to be the option of—Bajpai proposes this with a 6-year window—raising the equity portion to 100%. The panel’s simulation model shows that a rejigging of portfolio from 10% equity + 50% government debt + 40% corporate debt to 50% equity + 25% each for corporate and government debt will increase the pension wealth by 46% after three decades. Which is why the panel points out the current policy of a default portfolio—in the case of NPS-Light, for instance, all investments have to be made in debt instruments—is a bad idea, and that participants have to be encouraged to make a choice; that, of course, would also need more investor education. Given the range of new investment alternatives in real estate, commodities and infrastructure, the panel suggests these be added to the portfolio of choices.
Another very important recommendation is to relook the asset management fees from the current absurd level of 0.01% of AUM—this has been borrowed from the EPFO structure, which requires little skill since it only allows for fixed income investment, and mostly in GSecs at that; nor does it require marketing since EPFO contributions are mandatory by law. If NPS has to be a viable alternative, it has to be sold to customers, and that requires higher fees—possibly a low fixed-base fee with the rest linked to performance. Indeed, for lower-income subscribers, the scheme has to be married with a mandatory government contribution as well. And, sooner rather than later, the government will have to bring in tax parity for all pension products and exempt NPS from tax at the time of withdrawal.