Exclusive: ‘EPF to NPS portability to trigger a sea change in pension industry’ Q&A with HDFC Pension Fund Management MD & CEO Sriram Iyer

What recent reforms and innovations are shaping the pension sector?

We have to acknowledge that there are only 7.7 million subscribers in the non-government sector, with roughly Rs 3.5 lakh crore in assets under management (AUM). This is not significant in the context of other financial products. The Pension Fund Regulatory and Development Authority (PFRDA) has been very pragmatic, particularly over the last eight to nine months. The first reform was the introduction of the Multi-Scheme Framework (MSF), which gives individuals the ability to hold multiple schemes within their pension account. 

The second important development is the bundling of products. For instance, we have launched complimentary health check-ups and a will-writing service for all MSF subscribers who have contributed beyond a certain threshold.

The third dimension is process innovation, particularly for gig and platform workers, through the e-Shramik model.

The latest set of reforms is in the decumulation space—the post-retirement phase. Subscribers can now remain invested up to the age of 85, compared with 75 earlier. PFRDA’s guidelines also allow the 60% or 80% lump-sum portion to remain invested under a life-stage-based asset allocation model, with equity exposure gradually declining from 35% at age 60 to 10% over time during the withdrawal phase.

But the pension industry is lagging behind mutual funds and insurance in terms of growth.

Distribution and awareness remain the biggest challenges, and they are interlinked. For comparison, the Atal Pension Yojana, which extensively leverages the banking channel, has close to 80-85 million subscribers. NPS, despite being a superior product in many ways, has not seen that level of traction from the banking and distribution community, primarily because the commercial incentives were not attractive enough. With the shift to an AUM-based distribution fee of 0.20%, we are beginning to see some traction. The industry added around 1.45 million subscribers in the last financial year, registering growth of about 20%.

One structural challenge is that Employees’ Provident Fund (EPF) contributions of 12% of basic salary are treated as de facto mandatory by most HR departments, even though technically only 12% of Rs 15,000 is truly mandatory. If individuals could choose between EPF and NPS, or if they had the ability to transfer their EPF corpus to NPS, it could result in a sea change.

We work with 72 PSUs, and many of them have moved their superannuation corpus to NPS. However, a similar EPF-to-NPS portability mechanism at the EPFO level has not yet been established. That remains a structural opportunity which, if addressed, could dramatically accelerate growth.

What are HDFC Pension’s growth ambitions over the next few years?

We will complete 13 years in the fund management business this August. We entered the Point of Presence (PoP) distribution business in 2019, so we are seven years into that journey. The growth over the last five years has been significant. As of March 31, 2022, our AUM stood at Rs 28,414 crore. Today, we manage Rs 1.67 lakh crore. Our subscriber base has grown from around 1 million to 3 million.

On the PoP side, we currently service close to 5,000 corporates with a subscriber base of around 750,000, and we are adding approximately 120 new corporates every month. We want to triple our subscriber base over the next three to four years.

How do you plan to achieve this growth?

First, explore new opportunities. All the new segments that have opened up: gig workers, the agricultural sector, MFIs and MSMEs represent a significant addressable market. We have already seen early success with gig workers, with 150,000 Zomato delivery partners onboarded. We have dedicated teams set up for agri, MFI and other new segments. Second, fortify our position in Corporate NPS. Third, strengthen technology adoption and customer servicing.

Which customer segments will be your key growth drivers?

Corporate NPS will continue to lead, in my view, because awareness is rising and the tax benefit associated with the 14% employer contribution is increasingly well understood. It is truly a no-brainer for every salaried individual in India.

However, we must recognise that the formal employment universe comprises only about 45 million people. MSMEs represent a large and underpenetrated opportunity. There are reportedly around 75 million MSMEs in India. If we can reach even a fraction of MSME employees, who are often in a financially vulnerable position, the impact could be enormous.