One of the most significant policy reforms in Indian economy is the introduction of the New Pension System (NPS) as a part of the social security reform. NPS, introduced in January 2004, has been accepted by 22 state governments and subsequently opened to all citizens on voluntary basis from May 2009. NPS is a unique low cost, technology-driven system with provision of portability, switchovers, flexible pay outs, multi-option portfolio and multiple fund managers. Further, infancy in regulation no way makes the system vulnerable rather the regulatory mechanism and the speed at which that has been introduced, is quite commendable.
NPS is a policy initiative attempting to tackle the problems arising out increased longevity, insufficient retirement savings and absence of formal social security, particularly for the unorganized and informal segment of the labour force. Elderly population is growing at 3.8% as against general population growth of 1.8%, average longevity is expected to increase from 63 years at present to 67-68 years by 2016-17. The current social security and pension covers only 11% of workers, leaving the rest without any formal social security and pension coverage. A survey shows that 310 million workers in the unorganised sector were uncovered in 2004.
However, some critical observations from experts finger out weaknesses of the system, ignoring the brighter aspects of this far-reaching initiative. One such observation is related to the low fund management cost, resulting in poor response towards the scheme, especially from the non-government sector. Another roadblock for the NPS is related to the absence of distributors, which prohibits the flow of funds.
Various Stakeholders like fund managers and point of presence accepted to be the part of this new initiative. Media has also emerged as the strong medium and plays a crucial role in educating public about the various aspects of any new initiative. Though the government and the regulator play their respective roles, responsibilities of other stakeholders are also essentially critical. Therefore, a coordinated effort by the public and private entities is required to implement NPS successfully. This action can be called Public Private Support for NPS (PPS for NPS).
n Objectives
. This is a national level literacy mission with the major objectives to create awareness about potential adverse impact of Ageing & Population Explosion (APE), benefits of NPS, necessity for financial savings, long-term impact of early savings for retirement (LTESR) and understanding & analysing individual risk tolerance level (IRTL).
n Ownership
Unless the ownership is clearly identified, no programme can be effective enough to achieve the desired goal. Therefore, we need to spell out clearly the ownership, responsibility and accountability of the owners. Since NPS is a national programme, it needs to be owned by a cross section of the entities, in addition to the government and the regulator. Intermediaries like the sponsors of fund managers, point of presence, central record keeping agency etc, who have opted to be a part of NPS, have important roles to play in the process since in course of time, they will reap financial and non-financial benefits, directly or indirectly. Corporates also have an important role to play since they will provide retirement benefit support to the workers.
n PPS Fund
A national-level programme like PPS requires huge budget and owners of PPS need to translate ownership into responsibility through financial contribution to PPS fund. Further, since it is a national priority programme, contribution from other profitable entities may also be accepted. The government may provide suitable tax benefits for such contributions.
n PPS Coverage
PPS would cover all-young and old, educated and uneducated as well as professionals from organised and unorganised sector. Hence the material, the mode of delivery should be uniquely designed to suit the purpose of specific section to be covered.
n PPS Trainer
PPS transmission mechanism needs to be crafted carefully. Therefore, trainers need to be highly skilled, motivate and purpose oriented. A special group of trainers need to be trained first. They will, in turn, take the NPS education to the people. Media and journalists are also to be trained, since they play a critical role in educating their readers.
n National Coordination Committee
Effective implementation of PPS calls for coordinating the programme without any leakage. We need to set up a National Coordination Committee, drawing experts from stakeholders of public and private sectors.
n What PPS can deliver?
PPS would be immensely beneficial on NPS in terms increase in awareness, enrolment and contribution. In most countries, such awareness programmes were launched along with the pension reforms. Pension Awareness Campaign had significant influence on expanding pension awareness, increasing the number of contributors and contribution. For example, Ireland introduced pension reforms in 2002 and launched National Pension Awareness Campaign and the impact was very significant: Public Awareness level of Pension & Pension adequacy increased from 60% in 2003 to 87% in 2005 and Pension Coverage rate for employees aged 30-65 years increased from 57.8% to 61.8% during the same period.
(Views are personal)