I am a subscriber of Moneylife magazine since long. The newsletter is also good; I never miss reading them. I appreciate the efforts of Moneylife Foundation to throw light on many investors’ issues and other issues. I would like to share my experience with TataSky which may also be the case of many other DTH subscribers.
A retirement product should be less volatile, small on charges, big on tax benefits and flexible after retirement. What does the NPS score on these parameters?
The New Pension System (NPS) was compulsorily thrust upon government employees in 2004. It has also been thrown open for subscription to the public four years back, with some incentives from the Government of India. All subscribers registered in FY2010-11 were eligible for getting a contribution of Rs1,000 per year from the government for four years beginning the same year. The NPS is being pushed as an ideal retirement planning product. Is it?
Volatile returns not acceptable for a pension planning product
Moneylife had earlier written on how returns from NPS are hugely volatile, even from bond schemes. An analysis of the performance of pension fund managers in the New Pension System (NPS) shows huge volatility in the returns of various schemes and this could put off many savers.
Over the period 2009-11, returns of the schemes for the unorganised sector have varied from 23.51% to -3.15%. This surprising volatility in the returns of NPS, when the investments are supposed to be strait-jacketed, has scared away savers, who simply cannot associate volatility with a pension plan. This factor alone has ensured that NPS for the voluntary sector has remained a non-starter. What ultimately happens would be known only after 30-odd years.
While it is true that NPS returns are market-determined and therefore bound to be volatile, Indian savers, who largely shun equities and mutual funds, would not want to be part of something like this, for a very long time.
High charges for small investors kill the investable chunk
The next issue is the bigger proportional costs for smaller investor. Other than the asset servicing charges and the Investment management fee which are calculated on a percentage basis, all other charges are fixed per transaction. This would take away a large chunk of money from small time investors.
The table of charges given in the original draft offer document shows that if an investor invests Rs6,000 annually in a single investment, a total of Rs311.50 would be charged, which is over 5.1% of the amount to be invested in the first year. This is the most conservative estimate of per transaction charges. It would increase the overall charges, if the number of transactions made is more than one.
Arbitrarily increased charges fuel instability
After the initial euphoria of charges being low enough, the Pension Fund Regulatory & Development Authority (PFRDA) increased the Investment Management fee from 0.0009% to 0.25% of the investment made. This makes it a total of Rs326, as charges for investing the same Rs6,000 in the first year, that is, 5.4% of the amount to be invested, most conservatively. Besides that, PFRDA also permitted the fund managers to revise Investment Management Fee once a year, each year. To bring the charges down to 1% of the amount to be invested, you will have to invest a minimum if Rs31,000 in the first year (most conservatively, to save on costs per transaction). Anything below that would be costly in comparison with comparable products.
Annuity ties down post retirement income
The next worrisome point? NPS does not let you withdraw all your earnings—ever. According to the offer document of the NPS, “On attaining the age of 60 years, you will be required to compulsorily annuitize at least 40% of your pension wealth and the remaining 60% can be withdrawn as a lump sum or in a phased manner; in case, you opt for a phased withdrawal and if you withdraw any time before 60 years of age, you will have to compulsorily annuitize 80% of your accumulated pension wealth. The remaining 20% can be withdrawn as a lump sum.” When you retire, would you want to invest compulsorily in the annuity product that gives you a taxable return of 7% at an average?
Taxable withdrawal reduces money when it is required the most
At present, the tax treatment for contribution made in Tier I account is EET, “Exempted-Exempted-Taxed” i.e. the amount contributed is entitled for deduction from gross total income upto Rs1 lakh under Sec 80C. The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity is not taxable, only the amount withdrawn by the subscriber after the age of 60 years is taxable. NPS is proposed to be included under EEE category.
More than three years ago, we were excited by the NPS. But continuous tinkering and no PFRDA Act have changed the scenario. Unless the government addresses all the issues we have detailed, stay away from NPS.
Disclosure of the WGEEP report would enable citizens to debate in an informed manner and provide useful feedback to government. The law requires suo moto disclosure by the public authority while formulating important policies and not after formulating them, ruled the CIC. This is the 25th in a series of important judgements given by Shailesh Gandhi, former CIC, that can be used or quoted in an RTI application
The Central Information Commission (CIC), while rejecting the contention of the Public Information Officer (PIO) of the ministry of environment and forests (MoEF), ordered that all reports of panels, experts, committees and commissions set up by government with public funds must be displayed suo moto as per the mandate of Section 4 (1) (c) & (d) read with 4 (2) of the Right to Information (RTI) Act. While giving this important judgement, Shailesh Gandhi, former Central Information Commissioner, said, “The Commission does not find any merit in his (PIO's) contention that disclosure (of the report) would impact the economic interests of the nation.”
“The Commission directs that the ministry of environment and forests should publish all reports of commissions, special committees or panels within 30 days of receiving them, unless it feels that any part of such report is exempt under the provisions of Section 8 (1) or 9 of the RTI Act. If it concludes that any part is exempt, the reasons for claiming exemptions should be recorded and the report displayed on the website within 45 days of receipt, after severing the parts claimed to be exempt. There should be a declaration on the website about the parts that have been severed, and the reasons for claiming exemptions as per the provisions of the RTI Act,” the CIC said in its order issued on 9 April 2012.
Kerala-based G Krishnan, on 22 November 2011, sought information about the Madhav Gadgil panel report. He sought following information...
Summary of the report submitted to the ministry of environment and forests (MoEF) by the Western Ghats Ecology Expert Panel (WGEEP) under the chairmanship of Prof Madhav Gadgil and the report on the Athirappilly HEP, Kerala.
The PIO, while denying the information, stated that “(the) MoEF is still in the process of examining the report of WGEEP in consultation with six state governments of the Western Ghats region. The report is not final and a draft under consideration of MoEF and thus not complete/ready for disclosure under the RTI Act. The appellant was requested to file his RTI application again at a later date after completion of the process.”
Not satisfied with the reply, G Krishnan then filed application with the First Appellate Authority (FAA). The FAA mentioned that the information sought may not be disclosed under Section 8 of the RTI Act.
G Krishnan then filed a second appeal before the Commission. During the hearing on 23 March 2012, the Commission noted that the PIO did not give any reasons for denying the information; however, he mentioned that the FAA has held that the information may not be disclosed under Section 8 of the RTI Act.
The PIO accepted that the sovereignty and integrity, security or strategic interests of the State would not be affected. He argued that “scientific or economic interests of the State” would be prejudicially affected on disclosure of the information at this stage. The PIO further stated that views from 11 ministries, the Planning Commission and six states were sought. Therefore, disclosure of information at this stage would lead to various proposals as per the recommendations of the report which had not been finally accepted.
The Commission then reserved its order.
In an order issued on 9 April 2012, Mr Gandhi noted that the PIO denied the information contending that the report was being finalised and hence not ready to be furnished under the RTI Act. “It must be noted that since the report has already been submitted by the panel to MoEF, it cannot be called a ‘draft’ report. Moreover, there is no provision in the RTI Act which exempts from disclosure a report that has not been finalised or accepted by a public authority,” the Commission noted.
During the first hearing on 23rd March, the PIO claimed that the information was protected from disclosure under Section 8 (1) (a) of the RTI Act, which exempts ‘information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence’.
The WGEEP was set up in 2010 by the MoEF under the chairmanship of Prof Madhav Gadgil. It was designated certain functions which included an assessment of the ecological status of the Western Ghats region, demarcation of areas within the said region required to be notified as ecologically sensitive, and recommendations for conservation, protection and rejuvenation of the Western Ghats region. The panel was also given the task of examining the Athirappilly hydroelectric project (HEP).
On receipt of the report, the MOEF recognised that the recommendations contained therein had far-reaching consequences on conservation and development of the Western Ghats region, and centre-state relations. Therefore, wide ranging consultations from the concerned states and central ministries were instituted.
Mr Gandhi said that the RTI Act recognises that a democracy requires an informed citizenry and transparency of information, and there is a need for transparency of information to contain corruption and to hold the government and its intermediaries accountable to the citizens.
Section 3 of the RTI Act lays down that all citizens can exercise their fundamental right to information from all public authorities, without having to give any purpose or reasons. A PIO must provide the information within 30 days unless it falls under the ten exemptions of Section 8 (1) or Section 9.
“...a claim that a final decision has not been taken, hence information will not be provided, is not a tenable reason for refusal. Thus, all denial of information would have to be justified by the provisions of the RTI Act,” the Commission said.
Even if the information is exempted, it would have to be provided, if a larger public interest can be proved in disclosure as per the provision of Section 8 (2). After 20 years have elapsed, only three of the exemptions of Section 8 (1) would apply. Thus, Parliament clearly intended that most of the information should be available to the citizens and denial of information should be the exception and disclosure the rule. Section 4 of the Act was a statutory direction to all public authorities “to provide as much information suo moto to the public at regular intervals through various means of communications, including internet, so that the public have minimum resort to the use of this Act to obtain information”, Mr Gandhi noted in his order.
The Western Ghats have been internationally accepted as a region of topographical and ecological significance. It is recognised as a biodiversity hotspot on account of a substantial number of species facing the threat of extinction. From the broad mandate of the WGEEP, it is clear that its report would have extensive ramifications on the biodiversity of an ecologically-sensitive region as the Western Ghats. Moreover, as submitted by the PIO, the areas covered by WGEEP in its report and the recommendations given therein would influence many important sectors such as agriculture, land use, mining, industry, tourism, water resources, power, roads and railways.
The PIO argued that premature release of the report (containing the methodology for demarcation) into the public domain without adequate consultations with the state governments/central ministries to refine the boundaries of eco-sensitive areas may lead to a situation wherein there would be an influx of proposals for declaration of eco-sensitive zones in the Western Ghats by individuals/ groups/ organisations. His contention was that this would impact economic progress and interests. The PIO did not, however, advance any argument to show how the scientific interests of the nation would be affected.
Mr Gandhi observed that, “Disclosing a report or information does not mean that the government has to follow it. It may perhaps have to explain the reasons to the public for disagreeing with a report based on logic and coherent reasons. This cannot be considered as prejudicially affecting the scientific and economic interests of the State.”
“Even if the government decides not to accept the findings or recommendations, their significance as an important input for policy making and taking decisions cannot be disregarded arbitrarily. If such reports are put in public domain, citizens' views and concerns can be articulated in a scientific and reasonable manner. If the government has reasons to ignore the reports, these should logically be put before people,” he said.
The RTI Act recognises the above mandate and in Section 4 contains a statutory direction to all public authorities “to provide as much information suo moto to the public at regular intervals through various means of communications, including internet, so that the public have minimum resort to the use of this Act to obtain information”. More specifically, Section 4 (1) (c) of the RTI Act mandates that all public authorities shall “publish all relevant facts while formulating important policies or announcing the decisions which affect public”. It follows from the above that citizens have a right to know about the WGEEP report, which has been prepared with public money, and has wide ramifications on the environment. Disclosure of the WGEEP report would enable citizens to debate in an informed manner and provide useful feedback to the government, which may be taken into account before finalizing the same, the Commission noted.
The PIO has not been able to give any reason how the disclosure would affect the scientific interests of the State. The PIO’s claim for exemption is solely based on Section 8 (1) (a) of the RTI Act. The Commission has examined this claim and does not find any merit in his contention that the disclosure would impact the economic interests of the Nation. The Commission, therefore, rejects the PIO’s contention that the information sought by the appellant is exempt under Section 8 (1) (a) of the RTI Act, Mr Gandhi said.
While allowing the appeal, the Commission directed the PIO to an attested photocopy of the summary of the WGEEP report and the report on the Athirappilly HEP, Kerala to the appellant before 5 May 2012. Furthermore, it asked the PIO to ensure that the complete WGEEP report is placed on the ministry of environment and forest’s website before 10 May 2012.
The Commission directed the MoEF to publish all reports of commissions, special committees or panels within 30 days of receiving them, unless it feels that any part of such report is exempt under the provisions of Section 8(1) or 9 of the RTI Act. “If it (MoEF) concludes that any part is exempt, the reasons for claiming exemptions should be recorded and the report displayed on the website within 45 days of receipt, after severing the parts claimed to be exempt. There should be a declaration on the website about the parts that have been severed, and the reasons for claiming exemptions as per the provisions of the RTI Act. This direction is being given by the Commission under Section 19(1)(b)(iii) of the Act to the Secretary, MoEF,” the Commission said in its order.
CENTRAL INFORMATION COMMISSION
Decision No. CIC/SG/A/2012/000374/18316
Appeal No. CIC/SG/A/2012/000374
Appellant : G Krishnan,
Respondent : Dr Amit Love,
CPIO & Deputy Director,
Ministry of Environment and Forests,
Room No. 539, Paryavaran Bhavan,
CGO Complex, Lodhi Road