The Pension Fund Regulatory and Development Authority (PFRDA) is getting ready to bring in a host of regulatory measures in the next two months. New PFRDA Chairman Hemant Contractor, who was till recently MD of State Bank of India, spoke to George Mathew about a host issues from tax sops, fee structure to new plans in an interview. Excerpts:
What is your agenda for the pension sector?
The Act was passed last year and was notified in February this year. We are now putting in place all regulations to make the Act effective. We have to finalise 14 or 15 regulations in the next two months. That’s our immediate priority. Otherwise you can’t make the Act effective. The role of various stakeholders, aggregators, the role of trustees, record keeping agencies and custodians…all these things are getting finalised. The pushing of pension products, especially under Jan Dhan, is also a focus area.
Is the pension fund market growing?
The organised sector is fairly well covered. The EPFO covers all organised companies, the government and all civil servants are covered. What remains is the unorganised sector. This segment include hawkers, drivers, maidservants, rickshaw-wallahs. It’s not very easy to cover. That’s one we are now targetting. This is the bottom of pyramid and it’s not an easy job. We have been growing well. In the NPS Lite, which is the low-cost pension product, the numbers have touched 35 lakh. Last year we doubled the number. This year our plan is to grow by 50 lakh. Out of the fund size of Rs 70,000 crore, nearly 80 per cent is government money. The subscriber base will grow. These subscribers are small players and they hardly pay Rs 1,000 or Rs 2,000.
Are returns matching expectations? Will you hike equity investment limit?
On the returns front, we are on a par with all the private sector fellows. This is because the investment pattern has been made like that. You can go up to 50 per cent in equity. We have the lowest cost pension product. With just Rs 50, you can have a pension product. On hiking equity limit, subscribers are not very keen. They have gone up to only 15-16 per cent in equity though theoretically they can go up to 50 per cent.
Will you get a level playing field on the tax front vis-a-vis EPFO?
We have been asking for tax incentives so that we can be on par with EPFO products. Right now it’s EET (no tax during contribution and accumulation but taxed during withdrawal) pension and we want to make it EEE (no tax at any of the stages). The government said we will look at it. When the tax issue is sorted out, there will be lot more interest.
Is there any plan to bring EPFO under PFRDA or allow more players?
No. EPFO is kept out of our purview. The Act also says that. Right now there are seven pension fund managers in operation. We reviewed the position only in January this year. There’s no immediate plan to review the system.
Are you able to bring corporates under your pension plan?
We have got around 1,500 corporates. The fund size is just about Rs 1,300 crore. We would like that sector to grow. There is lack of awareness which is an issue. This product, NPS, is not very well known. Our attempt is to popularise it among corporates.
There is a complaint from pension players that they are not getting enough remuneration? Do you plan to revise the fee?
It was an open bidding process. They have themselves to blame. They keep saying you have to revise the fee. There’s no immediate plan to do it. We will be looking at it. We don’t think it’s low. If they start losing interest in the industry, that’s also not good for the industry. We would like to have a balanced view of things. Our first priority is to put in place all regulations so that everybody understands their responsibilities. When that’s done, we will look at other things.
What will be the impact of the Insurance Bill on pension sector? Will more foreign players come into the sector?
It will be automatically applicable in the pension fund sector. Not many (foreign players) have come. I don’t know how much foreign interest it will attract. When it was 26 per cent, there was not much activity. At 49 per cent, maybe some players might come in. But the thing to note is that the market to be tapped is the unorganised market. This market is big, but may not be immediately attractive to foreign players. They will probably come in when the market grows a little bit.