Whose pension scheme is it anyway? A pick-me-up for NPS

The New Pension Scheme (NPS) has been a resounding flop. After seven years of being open to government employees and two years to the general public, the funds under management are an underwhelming Rs 8,585 crore. While 12 lakh government employees have been enrolled, there are apparently only 50,000 members from the general public.

What’s gone wrong? The GN Bajpai committee set up to review its appeal (or rather the lack of it) says the biggest problem is that no one knows who owns the customer. As a result no one is willing to sell it.

The scheme’s fragmented structure - with seven asset management companies in the fray and multiple sellers with little incentive to sell the scheme - means that it does not get any kind of marketing push.

But that was the whole point, says former pension fund regulator Dhirendra Swarup . The scheme, he says, was not meant to be a push product, which often resulted in mis-selling - like the unit-linked insurance plans (Ulips) were till recently.

NPS was meant to be a pull product, where the individual saver - whether employed or self-employed - was encouraged through financial literacy campaigns to save for his retirement in a cost-effective way. Making it a push product by incentivising sellers would only make it costly.

But between the ideal and ground reality there is a wide gap. According to Bajpai, the scheme fails on many fronts: He points out that there is little enthusiasm to market the product as even bank branches do not find it worth their while to do so. They would rather sell their own pension products or Ulips or mutual funds.

Bajpai also has a bone to pick about costs. In the current cost structure, each subscriber needs to pay fixed amounts as management fees that might not be very high in absolute terms but is huge in percentage terms if one looks at low-end subscribers - especially those investing a few thousand a year. It has, therefore, proposed a full revamp with the following changes:

* The main change proposed is the introduction of a commission structure for sellers at 0.5% of the amount collected, subject to a minimum of Rs 20 and a maximum of Rs 50,000. Currently, the sellers - called points of presence - are paid a flat fee of Rs 40 for opening the account and a per transaction fee of Rs 20.

* The committee insists on better marketing, taking advantage of the reach of the postal department, the telecom network, and even FMCG companies which have a good rural reach.

* Bajpai wants the minimum subscriber amount to be reduced to Rs 1,000 per annum (against Rs 6,000 per annum now) to widen the scope for poorer people to enter the scheme.

* A sliding scale, where the fees fall if the assets under management increase, is also being suggested.

Dhirendra Kumar, CEO, Value Research, writes in an article in The Economic Times that the main reason for failure lay in the scheme’s governance and implementation. He argues that the scheme will not gain many converts unless its assets grow faster than fixed income schemes. But there is hardly any information on how the various asset management companies are performing.

The scheme is managed by seven players, with subscribers choosing among LIC Pension Fund, SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Fund Management, ICICI Prudential Pension Funds Management, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund.

For something that has been in existence for seven years, NPS has little to show by way of success. Bajpai’s recommendations may be just the pick-me-up it needs.