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Posted on Nov 27, 06:26PM | IBNS
Considering that National Pension Scheme (NPS) has not been a successful venture in the private sector, the Pension Fund Regulatory Development Authority (PFRDA) has introduced a registration process for pension fund managers (PFMs), increased the fees of PFMs from 0.0009 per cent to a fixed ceiling at 0.25 per cent along with other significant steps to ensure that pension sector in the private sector takes off, chairperson of the PFRDA said at an ASSOCHAM event held in New Delhi on Tuesday.
"NPS which started off as a government pension scheme has not been popular in the private sector as there are certain changes that have to be brought about when extending a compulsory product on a voluntary basis," said PFRDA chief Yogesh Agarwal while addressing a national conference on 'Pension Funds: The Untapped Opportunities' organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
"The NPS was extended to the voluntary sector i.e. the private sector without changing the main feature of the scheme that basically meant setting up a distribution and marketing network," said Agarwal.
"Now we have taken steps and revised our guidelines for the PFMs to increase their fees as per a more economically viable model where they would invest in marketing and distribution network and will get suitably incentivised for the same."
Talking about the target for the voluntary sector, Agarwal said "Our target is to take the pension market to the level of about USD 76 trillion by the next 30 years i.e. four times of the pension market of the United States with assets worth about USD 19 trillion currently."
Brushing aside any significant competition from insurance and mutual fund companies coming up with various pension products, the PFRDA head said, "Insurance companies had a field day when NPS was not around and now the subscriber has a very intelligent, cheap and better option available in form of the NPS and so I don't really see why any subscriber would go for a high cost insurance or mutual fund sector."
Talking about the need to innovate and design instruments to meet investment requirements of the pension funds to tap vast resources from individual savings to the pension fund sector, Agarwal welcomed the foreign individuals and companies interested to invest in India's pension market.
"Orderly growth of the pension fund will ensure channeling the individual savings into the growing needs of infrastructure and corporate sector through the medium of pension funds, making it a win-win situation for all the stakeholders," said Agarwal.
"The distribution has increased significantly over the years as from a corpus of about Rs 3,000 crore in 2007 we have reached to a level of about Rs 24,000 crore and when the private sector starts contributing in another five to six months, the growth will be exponential," said the PFRDA chief on the issue of distribution of pension products.
"Efficient distribution channels for pension products would be the key to success of the sector as it is imperative to bring the youth in the fold of pension industry."
"Financial inclusion of the pension sector, inclusion in the corporate sector, simplified products and their distribution system, low pension penetration, lack of awareness about financial and pension products and a large unorganised sector are certain key challenges being faced by the pension industry," said Agarwal.
Talking about the remedial steps to propel the growth of pension industry in India, Agarwal said, "Easy access to pension products, ability to choose products to suit differing and contextual financial needs, financial education and investor protection, product innovation and putting in place a system that minimizes the deleterious consequences of the risks embedded in the financial products including pension products are certain key measures required to be taken in this behalf."
Amid others who spoke during the ASSOCHAM national conference on pension funds included: Ravi Varanasi, senior vice-president, National Stock Exchange (NSE), Ashish Kumar Chauhan, MD and CEO, Bombay Stock Exchange (BSE), Rajkumar Dhoot, president, ASSOCHAM and H. Sadhak, head, ASSOCHAM Task Force on Pension and Advisor PwC.