In order to increase pension coverage and increase the incentives for points of presence (PoPs)—the principal distributive points for the National Pension System (NPS)—Pension Fund Regulatory and Development Authority (PFRDA) has increased the charges for subscribers of NPS.
Persistency charge for PoP
The regulator has introduced a persistency charge of Rs 50 annually, under which PoPs will receive an incentive of Rs 50 per account per year for every account which continues to contribute a minimum of Rs 1,000 in a financial year. The persistency charge will be paid by the subscriber and the amount will be deducted through cancellation of units. The pension regulator believes that the renewed incentive will help in increasing the reach of pension in the country through the efforts of PoPs. It has also raised initial subscriber registration charges from Rs 125 to Rs 200, to be collected upfront. For subsequent contributions to e-NPS, the charges have been doubled to 0.10% of the contribution—minimum of Rs 10 and maximum of Rs 10,000. This will be applicable for Tier I and Tier II accounts. Both initial subscriber registration and contribution charges are collected upfront by the PoPs. In fact, PoPs are the first point of interaction between the subscriber and NPS. They perform the functions relating to registration of subscribers, KYC verification, receive contributions and instructions from subscribers and help in requests for withdrawal. They also conduct customer due diligence procedures as required under the Prevention of Money Laundering Act, 2002 and ensure maintenance and reporting of all transactions. There are over 70 entities which have registered themselves as PoPs under NPS.
CRA charges revised earlier
In February this year, PFRDA reduced the central record-keeping agency (CRA) charges for private sector NPS subscribers. The regulator had appointed Karvy Computershare, a second CRA, which helped in reducing the charges. Earlier NSDL e-governance Infrastructure Ltd was the only CRA for NPS. Subscribers were provided an option to choose between NSDL e-governance and Karvy Computershare. Karvy fixed the account opening charge at Rs 39.36, annual maintenance cost at Rs 57.63 and transaction charge at Rs 3.36. Facing competition, NSDL also lowered its account opening charge to Rs 40 from Rs 50; reduce annual maintenance charge to Rs 95 from Rs 190 and transaction charge to Rs 3.75 from Rs 4. A CRA is responsible for record-keeping, administration and customer service functions for all subscribers.
The NPS account has four types of costs: central record-keeping charges, PoP charges, custodian charges, and pension fund management charges. Pension fund management or fund management charge is an annual fee paid to the fund managers for managing the subscriber’s money. Currently, this is 0.01% of the fund value. The custodian charge is 0.0075% a year of the asset value held with the custodian, which is Stock Holding Corporation of India Ltd.
A pure defined contribution pension product, NPS was introduced in 2004 for government employees and, in 2009, was extended to all private sector employees. At present there are 1.1 crore subscribers and the bulk are Central and state government employees. There are 6.4 lakh corporate subscribers. As on September 30, the assets under management is around Rs 2 lakh crore. The NPS offers two approaches to invest subscriber’s money: active choice and auto choice. In the first, an individual can decide on the asset classes in which the contributed funds are to be invested and their percentages—equity, corporate debt and government debt. In auto choice or life-cycle fund, the investment of funds is done automatically based on the age profile of the subscriber, where the equity portion declines with increase in age.