Lengthy process, clueless staff: Why withdrawal from National Pension Scheme is a pain for retirees

Is the National Pension Scheme (NPS) all that it is cracked up to be?

The scheme, which shifted focus from defined pension benefits to defined contributions for new government employees joining service from 2004, was the Vajpayee government’s stellar contribution to pension reforms and intended to help the state exchequer from going bust in the future under the weight of its outsize pension obligations.

Lengthy process, clueless staff: Why withdrawal from National Pension Scheme is a pain for retirees


The scheme was thrown open to the general public from May 2009 by the UPA, but despite being very well thought through on paper, it is nowhere near perfection when it comes to execution – to put it mildly.

As one of the early normal term withdrawees from the scheme last year, I found the NPS machinery confused about what each player is supposed to do, making the exit process unnecessarily complicated and tiresome to the subscriber.

I started the withdrawal process on superannuation some time in end-September 2015, but the money came into by my bank account and annuities allotted only by end-January-early February. The players in the NPS system work with varying levels of efficiency, with the Central Recordkeeping Agency under the National Securities Depository Ltd (CRA-NSDL) running a smooth online system, but the rest of the actors often don’t know their roles too clearly. What I found was that training on the withdrawal process at the point-of-presence (POP, which is the agency that gets you invest in the scheme) is meagre. Most front-end POP employees have no clue on how to ensure a quick and efficient exit for the retiree.

It is possible that right now there are more people entering the NPS than exiting it, and so the systems and training are not fully in place, but as things stand, the NPS subscriber is often clueless about what is happening to his withdrawal request for months on end.

Here’s a brief summation of how the process unfolded in my case. Maybe it is not everybody’s experience, but the Pension Fund Regulatory Authority of India (PFRDA), the NPS regulator which actually helped speed up the process in my case, could take note.

I started the withdrawal process around end-September 2015 by going to my bank, which, I presumed, was the nodal point of contact for my NPS subscription.

I assumed this since I had invested in the scheme only through the bank’s online portal, run by its subsidiary. But even the banker didn’t know that I had to go to the subsidiary, and that too a specific office of that subsidiary, to start the process.

I gave the form, which went to his back office, and then returned after one week, when I was told that the original NPS identity card (called PRAN card) had to be enclosed – not just a copy.

So I did that, and it again went to the back office, which then returned the form saying it had to be processed by the subsidiary. The bank official – who was always helpful – then put me in touch with a person working at the subsidiary who was supposed to be knowledgeable about the process, but this was the first withdrawal request he had handled, and he had no clue what to do. He rang at least five different people at various levels in his organisation, but none could help him.

At this stage, I went to the CRA-NSDL office to ask what I had to do, since no one at the bank or its subsidiary knew what to do. CRA officials were more useful. They gave me the name of the exact official in the subsidiary I had to contact, and I duly called him.

The latter said there was no point sending a physical form, and the right thing to do was to fill out my withdrawal request on the CRA website, print the same out, and send it with all relevant documents to the NPS processing cell at his office. I completed this process by 19 October, couriering the documents to the NPS cell.

Then nothing. A month passed, and there was no news either of the receipt of the form, or what was happening to my request. After repeated calls, I was informed that the form had to vetted by my relationship manager (one wondered why), which was the first time I had heard about this gentleman.

I called him and he had no idea he was involved in the NPS process. When I called back to the guy at the subsidiary, he said the papers were now being sent to the relationship manager – a month after I had submitted them to his office.

Then, again nothing. No confirmation came from the relationship manager, or what was the next step. The relationship manager failed to take any calls of inquiry – and came back into the picture two months later, when he wanted to advise me on how to invest my money.

By now it was early December, and I used a journalist colleague to introduce me to someone at the PFRDA. It was only when the complaint process was initiated with the regulator, that things started moving. But even so, there was no information coming to me about what was happening. This is clear problem that needs fixing. At every stage in the process, the subscriber needs to know what is happening to his request for withdrawal.

Under NPS rules, you have to invest at least 40 percent of your accumulated corpus in an annuity, which required me to contact an annuity service provider. This part was super-efficient and two guys landed up at my office almost immediately with forms.

Quite clearly, when someone has a financial product to sell, they go out of their way to get things done. But I had to disappoint them. They would get their investment only when the whole process ended, and I had no way of telling them when that would happen.

The NPS withdrawal process at the CRA apparently involves many stages and players. The investment managers have to sell the underlying assets and remit the money to my account, and the amount to be invested in the annuity goes directly to the chosen annuity service provider. This process can take more than a month. My annuity finally got bought around early February, 2016.

The purpose of writing this piece is not to bring my cribs to the notice of the public, but to enable the PFRDA and the NPS vending service providers to fix processes at their end.

There are four players involved: the CRA, the POP, the Asset Management Company, and the annuity provider. And then, of course, there is the regulator (PFRDA), which does not have an operational role in the NPS.

The point is simple: the subscriber should be serviced at a single point, preferably the POP, so that there is no need to go to CRA or the POP or the annuity provider at various points. It should be a one-stop process, where all the formalities and documentation, including the choice of annuity, can be done in one visit. This would be efficient.

Right now, with front-end staff unaware on what to do, one has to run hither and thither to get things done. Information on the state of the withdrawal request should be given online at any point – which means CRA, POP, asset management company and annuity providers have to share online information on a real-time basis.

While this can be fixed through training and integration of information flows within the system, the bigger problem with NPS is the very poor choice of annuity options available right now.

There are seven kinds of annuities possible, but only two of them make sense, and they have the lowest returns.

The seven options are the following: (1) Annuity payable for life at a uniform rate (which pays the most, but is the most risky); (2) Annuity payable for 5, 10, 15 or 20 years (certain) and thereafter as long as the annuitant is alive; (3) Annuity for life with return of purchase price on death of the annuitant; (4) Annuity payable for life and increasing at a simple rate of 3 percent per annum; (5) Annuity for life with a provision of 50 percent of the annuity payable to spouse during his/her lifetime on death of the annuitant; (6) Annuity for life with a provision of 100 percent of the annuity payable to spouse during his/her lifetime on death of the annuitant; (7) Annuity for life with a provision of 100 percent of the annuity payable to spouse during his/her life time on death of annuitant. The purchase price will be returned on the death of last survivor.

The first option makes no sense, because though it pays the most, it means if you die the day after you buy the annuity, you forfeit the entire amount invested. The second scheme is too complicated, and thus not worth expending time on; the third is good, but the annuity is the second lowest (currently, the LIC’s Jeevan Akshay VI gives Rs 7,110 per month per Rs 1 lakh invested, assuming you are 60 when you buy it, when bank FDs offer more). The fourth scheme, which promises higher annuities every year, is good only if you think you are going to live long; it fails if you don’t. The fifth option is okay, but your spouse who survives you will get only 50 percent of the annuity you did, and it does not help if you (of your spouse) die early; the sixth option is a variation of the first, with your spouse receiving the same annuity you did, but again it works only is she/he lives long; the seventh option (which is the lowest) makes maximum sense since the money invested is returned after both you and spouse call it a day. Your inheritors will get the money invested.

These annuity scheme are clearly not very good, and options three and seven are the least bad ones.

Clearly, the annuities paying more ought to have a life cover attached so that if the annuitant dies early, the whole corpus is now swallowed by the annuity service provider.

In conclusion, I would sum up the issues thus: the NPS scheme is a good one, but the POP staff clearly need more training to handle exits; the exit process should be made single-window so that the subscriber knows what is going on and knows whom to check with; and last, the annuity products clearly need to be beefed up.

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Updated Date: Feb 11, 2016 07:46:31 IST

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