NPS is a pension scheme. At the end of the term, if one is not able to provide pension when he/she needs that, then the purpose of the scheme is defeated.
With longevity of life increasing to 75-80 years for average Indians, more people need to be initiated into pension products by innovative ways such as auto enrolment into schemes such as the National Pension System (NPS) at the time of joining an organisation, PFRDA chairman Supratim Bandyopadhyay tells Surya Sarathi Ray & Prasanta Sahu. Excerpts:
The National Pension System is tax-efficient and offers higher returns compared to other schemes. But an apparent disincentive, according to a section of potential subscribers, is that it doesn’t allow withdrawal of full corpus at the time of exit, like EPF.
NPS is a pension scheme. At the end of the term, if one is not able to provide pension when he/she needs that, then the purpose of the scheme is defeated. A lot of people due to hardship during pandemic withdrew money from EPFO. It is, of course, a support in difficult times. But the downside is that retirement planning goes for a toss. Today a person at the age of 60 may live for another 20 years, on an average.
Can a person switch from EPFO to NPS?
EPFO is mandatory where the number of employees are more than 20 in an organisation and the salary of employees are less than Rs 15,000/month. A lot of organisations think EPFO is the only option. So, they ensure that their employees join the EPFO. We have experience of a couple of organisations, which were not covered under EPFO. They had close to 1,000 employees. We gave them a presentation and they checked with EPFO. Then, all the 1,000 people shifted to NPS. That is possible.
How the NPS is panning out in rural areas?
Looking at the success of the Regional Rural Banks (intermediaries for NPS), in rural area also, the scheme is doing quite well. Thanks to banking correspondents, 95% of the business is generated by the banking channels.
The government used to subsidise 50% of the contribution initially for Atal Pension Yojana (APY). Is there any plan to bring it back?
The scheme started on June 1, 2015. The subsidy was given to those who joined till March 31, 2016. The government contributed a maximum of Rs 1,000 in one account in a year and the facility was there for five years. But some incentives are still there. For each APY subscriber, intermediaries get around Rs 120, and if the person doesn’t quit the scheme, there is additional incentive.
We have made a proposal for reintroduction of the subsidy scheme to the government. It is for the government to take a call on it.
Are you in favour of the idea of a universal pension for the below poverty line people?
APY is also a contributory scheme, but the government gives guarantee that is in case of a volatile market, if a person’s investment does not grow at the rate that was envisaged, then it will ensure that she get a minimum pension of Rs 1,000-5,000/month. We have suggested that the APY need not be isolated, let it not be isolated – can it be combined with two other products – Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Suraksha Bima Yojana (PMSBY). The idea is to have a larger social security scheme where pension and insurance converge.
Is there any plan for auto enrolment by establishments into pension schemes?
Auto enrolment was an announcement in the Parliament. Now the PFRDA Act is in the process of getting amended. While discussions are on, final decision is yet to be taken by the government.
Will auto enrolment start with the corporate sector?
For some part of the corporate sector, it is already mandatory. For example, most public sector banks have made it mandatory for their employees joining after a particular cut-off date. They won’t get the benefit of the old pension scheme.
Are more firms joining as fund managers under NPS?
Currently, there are seven fund managers for NPS corpus. Three more are in the process of taking licence — Axis, Max Life Insurance and Tata Mutual Fund.