Mercer, the leading global consulting firm, which had advised the pension regulator on its pension offering, feels that PFRDA has missed out on the big picture in designing the NPS architecture
While the new setup at the pension regulator, Pension Fund Regulatory and Development Authority (PFRDA) is now bending over backwards in an effort to revamp the struggling New Pension System (NPS), it has taken a lot of time for the regulator to see reason in addressing vital imbalances in the struggling pension product. A lot of these efforts have been a result of issues being brought out by various participants and intermediaries in the system. Even a globally recognised consulting firm which advised the PFRDA on this product has admitted that the plan of action has not been executed properly.
Mercer, the leading global provider of consulting, outsourcing and investment services had been roped in by the PFRDA to work out the design of the NPS. This US-based firm has a wealth of experience in dealing with pension systems across different countries in the west and also in the Asia-Pacific region. Hansi Mehrotra, head of wealth management, Asia Pacific at Mercer told Moneylife on the sidelines of a seminar organised by the Australian Trade Commission that the regulator has indeed come out with a half-baked product.
"Although the investment aspect of the NPS structure has been worked out reasonably well by the PFRDA, there exist several glaring issues on the administrative and distribution side," Ms Mehrotra admitted.
Ms Mehrotra pointed out that earlier discussions with PFRDA involved having dedicated advisory personnel attached to the points of presence service providers (PoP-SPs). These advisors would guide prospective investors with the working of the product and enable them to choose a plan suitable to their needs. However, this advisory role was totally scrapped by the PFRDA in its final design structure.
This has only resulted in reduced awareness among the investor community about the benefits of the NPS. Awareness about the scheme has been the Achilles' heel for the NPS with the absence of any marketing efforts around the product. It is only now that the government has woken up from its slumber and given the go-ahead to the PFRDA to create an awareness campaign for the NPS.
"PFRDA made a crucial mistake of thinking that the NPS should be bought, and not sold," clarified Ms Mehrotra. She pointed out that the whole reason behind the slow take-off of the scheme is the lack of incentivisation of the PoPs. "In the absence of any commission, why would anyone want to push this product? Given the choice, any distributor will push products that yield higher commissions." She also said that the PFRDA probably jumped the gun in bringing out the product for the masses and certain decisions were taken too quickly. Asked whether the capital markets regulator, Securities and Exchange Board of India (SEBI) also acted in haste in pushing certain regulations, Ms Mehrotra believes that the regulator did engage in discussions with market participants before taking these decisions. She did, however, point out that such decisions usually take longer in western countries due to the extent of lobbying done by corporates to the government.