ET BureauThe Pension Fund Regulatory and Development Authority (PFRDA) is in favour of raising the 15 per cent equity exposure ceiling for 36.54 lakh central and state government subscribers of the National Pension System (NPS), says Hemant Contractor, chairman, PFRDA. Contractor says the PFRDA will soon review the low fund management fee under NPS, so that there is an incentive for managers to popularise the scheme. Edited excerpts from an interview with ET’s Dheeraj Tiwari and Vinay Pandey:
Do you see foreign investment picking up in the pension sector once the insurance bill is passed?
The bill, once passed, will open up investment in pension funds. However, it will take some time for foreign investors to come in and set up pension funds of their own. As the pension business grows, you will find new players coming in the sector. So, the immediate impact may not be that much but it is a nascent sector, it will take a bit of time for new players. (Foreign investment limit in the pension sector, which is tied to the insurance sector, will rise to 49 per cent from 26 per cent if the insurance bill is passed in its present form.)
Is the almost negligible fund management fee coming in the way of promoting NPS?
We propose to review the fee structure for PFMs (pension fund managers) in the near future. We also feel that management fee is quite low and the idea is to get on a model where everyone is fairly paid. We are in discussion with all players, including the government. We have the right to review it and may take a call as early as next fiscal. During the first six months, when the fee for PFMs was revised, we saw that they were able to get around 1,500 companies under the voluntary pension scheme. We have to find the right mix, so that there is an incentive for everyone to popularise the scheme.
Do you think it is time to give government employees more exposure to stocks under NPS?
There is a case for allocating greater weightage towards equity. On the issue of investment pattern for government employees, it is something that the government has to take a call on. But it is possible under the Act. We have raised this issue with the government that choice of investment should be left to the subscriber. The Bajpai Committee is already reviewing the investment guidelines for pension system and we expect them to soon submit a report.
Are you trying to bring all exempt pension funds under PFRDA?
We have written to all companies. So far, 30-40 companies have responded but we need more data on this. The core idea is that there should be a regulator to have a close watch on the activities of these firms. The EPFO has exempted them because they feel they have the financial wherewithal but they still need to be regulated.
NPS has not got the investor attention it should have. What steps are you taking to popularise NPS?
First, we are trying to make more people aware of the scheme and bring them under the NPS fold. Second, we are in discussion with the government to grant us the 'exempt-exemptexempt' status. (Withdrawals are taxable under the current norms). The new government has sounded positive on that and our view is that a differential structure for taxation of pension benefits is not good for the industry. Third, we are embarking on a financial literacy campaign to educate people to save for their old age.
How will you tap the Jan Dhan scheme? What is the status of Swavalamban?
There has been some good progress on that front and at present there are 36-37 lakh subscribers under the scheme. We are in discussion with the government to extend the duration of this co-contributory scheme to at least 25 years. This is not a big burden on the government as it already allocates funds for some other pension schemes. The persistency ratio in Swavlamban is around 70 per cent and most subscribers are women, so it is all the more important to take steps to promote this scheme. Under PMJDY, we have given banks a target of opening 70 accounts per branch, amounting to a total target of 56 lakh Swavalamban accounts for 2014-15.
Do you see foreign investment picking up in the pension sector once the insurance bill is passed?
The bill, once passed, will open up investment in pension funds. However, it will take some time for foreign investors to come in and set up pension funds of their own. As the pension business grows, you will find new players coming in the sector. So, the immediate impact may not be that much but it is a nascent sector, it will take a bit of time for new players. (Foreign investment limit in the pension sector, which is tied to the insurance sector, will rise to 49 per cent from 26 per cent if the insurance bill is passed in its present form.)
Is the almost negligible fund management fee coming in the way of promoting NPS?
We propose to review the fee structure for PFMs (pension fund managers) in the near future. We also feel that management fee is quite low and the idea is to get on a model where everyone is fairly paid. We are in discussion with all players, including the government. We have the right to review it and may take a call as early as next fiscal. During the first six months, when the fee for PFMs was revised, we saw that they were able to get around 1,500 companies under the voluntary pension scheme. We have to find the right mix, so that there is an incentive for everyone to popularise the scheme.
Do you think it is time to give government employees more exposure to stocks under NPS?
There is a case for allocating greater weightage towards equity. On the issue of investment pattern for government employees, it is something that the government has to take a call on. But it is possible under the Act. We have raised this issue with the government that choice of investment should be left to the subscriber. The Bajpai Committee is already reviewing the investment guidelines for pension system and we expect them to soon submit a report.
Are you trying to bring all exempt pension funds under PFRDA?
We have written to all companies. So far, 30-40 companies have responded but we need more data on this. The core idea is that there should be a regulator to have a close watch on the activities of these firms. The EPFO has exempted them because they feel they have the financial wherewithal but they still need to be regulated.
NPS has not got the investor attention it should have. What steps are you taking to popularise NPS?
First, we are trying to make more people aware of the scheme and bring them under the NPS fold. Second, we are in discussion with the government to grant us the 'exempt-exemptexempt' status. (Withdrawals are taxable under the current norms). The new government has sounded positive on that and our view is that a differential structure for taxation of pension benefits is not good for the industry. Third, we are embarking on a financial literacy campaign to educate people to save for their old age.
How will you tap the Jan Dhan scheme? What is the status of Swavalamban?
There has been some good progress on that front and at present there are 36-37 lakh subscribers under the scheme. We are in discussion with the government to extend the duration of this co-contributory scheme to at least 25 years. This is not a big burden on the government as it already allocates funds for some other pension schemes. The persistency ratio in Swavlamban is around 70 per cent and most subscribers are women, so it is all the more important to take steps to promote this scheme. Under PMJDY, we have given banks a target of opening 70 accounts per branch, amounting to a total target of 56 lakh Swavalamban accounts for 2014-15.
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