Chairman, Pension Fund Regulatory and Development Authority (PFRDA), Hemant Contractor, talks to Moneycontrol on a wide range of issues regarding the National Pension System (NPS). Contractor says that inflow trends suggest 2017-18 would be a bumper year for NPS.
How has the first half of the 2017-18 been for NPS?
The going has been good so far. Last year NPS grew by 47 per cent. This year, if you look at a pro-rata basis, it’s a little more than last year. Considering the fact that most of the growth comes during the last months of the financial year, the growth momentum is expected to be much more towards the later part of the year. We are quite hopeful that we will be ending the year better than last year. The amount we are managing at present has crossed the Rs 200,000 crore recently.
What’s are factors that is pushing this growth momentum?
Well, there are a number of factors. We have beefed up a lot of things. The product itself has been made a lot more attractive. The costs have come down for the individuals. Earlier, the costs were very low to begin with. It has now come down further with the second Centralised Recordkeeping Agency (Karvy) being allowed. CRA costs are the most. Also the returns are better now. In fact we are averaging more than 10 per cent since inception. In the last one year, returns have been very good, mainly due to the equity markets.
What is also working is that we have also lowered the entry barriers. Earlier a person had to put in at least Rs 6,000 a year which has been to Rs 1,000 so that more people can join NPS.
Also, we have given a huge online push. Earlier, the paperwork involved in opening an account was a bit cumbersome. If a person has a PAN card or Aadhaar he could open an account on the basis of these KYC documents. We are seeing a lot of persons opening accounts through the online channels. For the Atal Pension Yojana (APY) also we have introduced the online opening of accounts. Earlier it was not there. One had to go to the bank branch to open an account. A few banks have started this and we hope to get many more banks to offer this products online. That would reduce the workload for the branches and makes it much easier.
How many bank branches are offering NPS?
On paper we have more than 70,000 bank branches and other NBFC branches pushing NPS but of them hardly 15% or so were very active. We are now pushing banks to activate more branches. Once more bank branches become active, growth will also increase. Every month we have reviews with the banks all over the country and we keep driving home the point that you need to activate more and more branches. That’s happening. We are seeing an increase in the number of branches that are active now. That number which used to be around 15 per cent now, it is almost 23-24 percent. We would like all 70,000 bank branches to be active. That will take some time.
Recently, PFRDA had informed EPF subscribers on the steps to be taken to shift to NPS. Are you seeing any EPF subscribers moving to NPS?
The shift from EPF to NPS is not yet happening because there are many statutory things to be considered. Like, currently it is mandatory for companies to be members of EPF if they fall within the scope of EPFO. So they don’t really have a choice to opt out of EPFO they have to be mandatorily there. But what the Finance Minister, Arun Jaitely, had announced three years ago is that EPFO subscribers will be given a one-time choice to move over to NPS. But for that to happen this legal requirement has to change. The EPFO Act has to be changed to allow people to move.
The other hurdle in the way is the tax differential. EPF is an EEE scheme while we are EET scheme. There is a slight tax disadvantage if you shift to NPS. That will play in subscribers’ mind.
Have you talked to the government on this?
Yes. We have been telling the government that this obstacles needs to be sorted out.
You have allowed a small portion of assets under NPS to be invested in alternative investments? Are you seeing fund managers going for such investment?
Currently, the limit for alternative investments is 5 per cent. We have allowed a lot of new instruments like REITS, INVITs, VCF, PE. However, very little has happened because there are no REITS in the market, INVITs have just started and only a few issues have come out. Some investments have gone into that along with PE/VC. PFMs are looking at the whole issue and deciding. But so far I don’t think much investment has happened. Among alternative investments, some money has also gone into Tier-2 bonds of banks.
Are you thinking of adding new investment Instruments?
As and when required we will look into them.
The issue of providing parity to Government NPS with non-government segment is hanging for long. What is the status?
What we have been telling the government is that you should give the government employees the same choices available to the non-government employees, both in investments and choice of fund managers. Right now, the choice of fund managers for government employees is exercised by the government. Employees don’t have an option. They distribute the amount among 3 PSU fund managers – SBI, LIC and UTI. We said there should be a level-playing field in this respect also. All funds managers should be given access to the government funds and also the government employees should be given the same investment choices as is available to the non-government employees. That we are discussing for quite some time now. Government has to take a call.
What is preventing this from happening?
A lot of discussion has happened. Government is open to the issue but final decision is yet to be taken. One of the issue is whether the government employees are in a position to exercise the choice. For that we also have the answer. If they don’t want to exercise the choice the current choices will be default choice – the three existing PFMs. But if they do want to exercise the choice it will be available to them. So, we have told them all these things and we have built in all the safeguards to take care of their apprehensions. We are hopeful it will come through.
How are returns on the government side?
On the government’s side it is more or less similar. They are averaging around 10-11 per cent.
How are your life-cycle funds with high equity exposure working? Are they attracting investors?
Yes, they are. The aggressive one we offered where equity investment could go up to 75 per cent that is catching on well. We introduced this around 4 months ago and we already have around 40,000 subscribers. Of course in terms of numbers, the fund with 50 per cent cap on equities has the maximum numbers. But the aggressive fund is catching on fast.
The rising equity market must be playing a role?Yes. The equity market trend does have a role in this.