We want NPS on par with other retirement schemes: PFRDA Chief

Sarbajeet K SenMoneycontrolThe National Pension System (NPS) has emerged as a major pillar for providing income security at retirement. In a conversation with Moneycontrol, Chairman, Pension Fund Regulatory and Development Authority (PFRDA), Hemant Contractor says that NPS is trying to attract investments from younger segments of the population. He is also looking for tax benefits in the coming Union Budget to bring NPS at par with other EEE retirement products. Here are excerpts from the interview:How has been the progress of NPS this financial year?NPS has grown at the same pace as last year till December. I think this will improve in the coming months since most of the inflows into the scheme come in the last three months of the financial year (January-March) when people really start putting their money in their accounts. In 2015-16 we grew by 41 percent in terms of asset under management (AUM). The growth in terms of subscribers it was about 36 percent. On an expanded base I think we will be able to touch the same growth momentum this fiscal.Are the figures that you are quoting just for private sector NPS or includes government NPS?This is for all subscribers taken together.Have you seen any impact of demonetisation on inflows?Not really. We have seen some growth in the Tier-II accounts, which is the withdrawable option under NPS. But that has not been so big to really say that it is on account of demonetisation directly.This year you took some major steps including giving the option of higher equity investment and permitting investments in alternative schemes. What has been the impact on inflows?Yes, this year, we introduced alternative investment funds. Earlier investments in venture capital (VC) and private equity funds (PE) was not allowed but now we have permitted that up to a small amount of 2 percent under the overall alternative assets limit of 5 percent which includes REITs and investment trusts. Also, we introduced two more life-cycle funds – one an aggressive and a conservative fund – in an aggressive option; a person can put up to 75 percent in equity which reduced with age and in the conservative one the amount in equities is much less at 25 percent and falls even further. Though it is just about a month now, a few 100 subscribers have opted for these for options. We see it growing in the coming days.Are there any new investment instruments in the pipeline?Not immediately. We have in widened the scope enough. We can always look at various options. Right now practically everything is covered. But if new instruments come up we are always open to looking at them.But the new choices are limited to private sector NPS. Are you thinking of extending them to government employees?In fact we have asked the government to allow us to make the same choices available to government employees. We have been following this up very vigorously with the government. They are looking at it and there are indications they might agree to it. What are their concerns?The government machinery has its own momentum. It is not that they don’t want it but what they have been saying is that most government subscribers are junior level employees whose knowledge of finance may not be very high. So we said we will step up the financial education exercise and make them more aware and informed on pension products. We have started a new website for financial education called Sanchay and are putting lots of information on pensions and retirement planning on it. We have also started the process of training government officials on pensions so that they can in turn train the staff. We train development officers and treasury officers so that they can in turn explain to the government employees the benefits of NPS. We are also trying to spread the reach of NPS to Tier-2 and Tier-3 cities.The EPFO is trying to get the unorganised sector. Will that have an impact on NPS?Private sector NPS is a purely voluntary scheme. We are targeting the informal sector which is not covered by EPFO with schemes such as Atal Pension Yojana which is aimed at the informal sector. Because contribution levels are low and there is government guarantee, it appeals to lot of people especially the underprivileged segment of the informal sector. As things stand now everything other than what is covered under EPFO is open to us. Within the formal sector where EPFO is operating we are saying we are offering something more than what EPFO gives by way of pension benefits. We are placing NPS as a supplementary source of pension for those who are covered by EPFO.What are you looking for in the Union Budget for NPS?One perennial demand is to place NPS on par with other retirement schemes on taxation and make it an EEE scheme. The other one is on Tier-II balances. Currently Tier-II balances do not enjoy any tax benefits. We have said that they should be treated on par with mutual funds with indexation benefits. There are one or two other things. Last year the government had said that EPFO members – just the employees -- would be given a one-time choice to move to NPS. But apart from the statement nothing else has happened. The big obtacle here again is that EPFO is an EEE (exempt-exempt-exempt) scheme and ours is an EET scheme. So there will be some hesitation to come over. Unless that is done no one will be willing. And then there is the issue of modality. EPFO is a mandatory scheme and those covered have to come under it. You are saying now they will be given an option to switch to NPS; so there will be a need to amend the EPFO Act also. So all those things have to be worked out. Unless people are clear in their minds this will not work. Under the present tax structure, 40 percent of NPS corpus is not taxable and there is another 40 percent to be mandatorily put in annuities which is also not taxable. The remaining 20 percent is taxable. We want this to also be removed. Otherwise people won't be willing [to switch over].Are you happy with the returns generated by NPS fund managers?Our returns are very good. That is one of our key factors. We are giving around 12-13 percent compared to EPFO's 8.65 percent and our charges are much lower. So you know it is a good retirement product in all senses.Are younger people taking to NPS?We are seeing a good response from younger people and we are targeting them also. There are many advantages of young people joining. The burden of contribution is much lower and they can build a much larger corpus over the years. We would like the pension habit to grow among younger people. India is a young country where people in the age group below 35 is quite big. We would like to have them join NPS early.