Nalco opens New Pension Scheme?s PSU account

National Aluminium Company (Nalco) Ltd has become the first public sector unit to move its employees? retirement funds to the New Pension Scheme (NPS). The Board of the Pension Fund Regulatory and Development Authority (PFRDA) has cleared the modalities for Nalco to contribute 6% of workers? basic pay into the NPS, starting this month.

Citing Nalco?s ?test case?, the PFRDA is writing to the department of public enterprises to enable all central PSUs to bring their 1.5 million-odd workers into the NPS fold. If all PSUs come on board, the high annual record-keeping costs of NPS, which is currently at Rs 47, would fall by 36.5%, thanks to volume discounts. The NPS currently has 6.5 lakh accounts and is expected to hit the million mark by March 2010, which will trigger a 20% cut in record-keeping costs.

Nalco had been mulling a move to the NPS after the Second Pay Revision Committee report for PSUs was cleared by the Centre last year. The committee had mandated that central PSUs give their employees 30% of basic pay as retirement benefits. With 24% of worker?s salary going into the Employees? Provident Fund, PSUs had been asked to either set up their own schemes for the residual 6% or join an existing scheme.

?Nalco was a test case for us ? if it switches to NPS, more and more PSUs would want to come as that additional 6% needs to be deployed somewhere. The PFRDA board has given its green signal and Nalco is moving around 1800 executives? superannuation pension funds into the NPS,? PFRDA chairman Dhirendra Swarup told FE.

?I will be writing to the department of public enterprises informing them that Nalco has joined us and you may let all the other central PSUs know that the NPS platform is ready and available. This should give people the idea that there is another avenue available for retirement savings beyond the Employees? Provident Fund Organisation,? Swarup said.

Nalco?s decision comes at a good time for the PFRDA, which has seen a tepid response in the first five months since the NPS was thrown open to all citizens. Of the 6.51 lakh NPS accounts, most belong to central and state government employees with just over 2300 private citizens signing up till date. One key deterrent for potential NPS customers ? the high fixed cost of Rs 470 per annum charged by the record-keeping agency, National Securities Depository Ltd, is set to drop soon.

Of the 22 states that have decided to move new workers into the NPS, only three states have transferred their employee records to NSDL. Some central government departments are also yet to fully transfer their workers? records from the interim record-keeper, the Controller General of Accounts, to NSDL.

?We expect the central departments to complete transfer of records and more states to do the same by March 2010. This should take the total number of NPS accounts to a million and reduce NSDL?s annual maintenance charge from Rs 350 to Rs 280. The transaction costs would also drop from Rs 10 to Rs 6 each,? Swarup said. Effectively, this would slash record-keeping costs by over 25% ? from Rs 470 to Rs 352 per year.

The next volume discount from NSDL will kick in when the NPS reaches 3 million accounts and the PFRDA chairman expects to reach that milestone by the end of 2010-11. There is good reason for his confidence.

While Nalco?s entry will encourage many of the 280-odd PSUs to come under the NPS, several autonomous bodies under different ministries have agreed to join the NPS in-principle. They can bring in significant numbers to the NPS, but need to be pushed by their administrative ministries to complete the formalities.

The Indian Banks? Association has also decided ?in principle? to move new workers in public sector banks to the NPS. While SBI has a fully funded defined benefit pension plan for its workers, most other banks? pension funds are under-funded. A move to the defined-contribution NPS is imperative for banks to cut future pension liabilities as PSU banks are expected to hire at least 1.5 lakh new workers by 2011.

A decision on the cut-off date from which employees will come under New Pension Scheme can only be taken after ongoing wage negotiations are complete. IBA has held a meeting on the NPS structure with PFRDA officials in the presence of bank union representatives.