Retirement: PFRDA bill, a long road ahead

Even if the Act is passed, the NPS is full of holes

The Pension Fund Regulatory and Development Authority (PFRDA) Bill is about to be converted into an Act. On 30 August 2011, the Standing Committee on Finance, headed by Yashwant Sinha, former finance minister, presented the Bill to the Lok Sabha after a lot of changes and suggestions. However, it is not certain whether the New Pension System (NPS) will achieve its basic purpose, after the Bill is passed.

For instance, returns from the NPS for Central government employees, has been anything but smooth. It has ranged between 16.38% (State Bank of India, SBI) and 8.05% (SBI) during the period from 2008-09 to 2010-11. In contrast, the Employees’ Provident Fund Organisation (EPFO) has declared rate of return for subscribers to the Employees’ Provident Fund (EPF) at the rate of 8.5% for the year 2008-09 and 2009-10 and 9.5% for 2010-11—although by a sleight of hand.

Now, we know that investors shun volatility. There is limited participation in mutual funds due to the very same reason. Certain mutual funds may have a tremendous track record (giving yearly compounded returns of 22% since inception); yet, investments in these funds are low because Indian investors look for investments with guaranteed returns.

Therefore, without adequate investor literacy and handholding, it would be difficult to get investors to participate in the NPS or any other market-linked investment product. As mentioned by the Committee, “It requires a huge educational and awareness effort to inform and enthuse the workers to join a pension system with no easy withdrawal benefits for 30-40 years.”

So it is not a surprise that from the unorganised sector, only around 0.3 million subscribers have so far joined the ‘Swavalamban’ pension scheme, and that only around 51,000 have joined the voluntary part of the NPS so far.

The committee is rightly concerned about volatility of returns vis-à-vis the old pension system, under which a retiree is guaranteed a monthly pension amounting to 50% of the average of the pay drawn in the last ten months of service and the facility of commutation.

The Committee has proposed that the investment guidelines should be framed by PFRDA in such a manner that, besides the other financial instruments, an option would be given to the subscribers of the NPS where 100% investment in government securities would be permitted. This would be similar to bank fixed deposits for investors as they would earn interest along with capital protection. How far this would influence participation still remains a big question.

Withdrawal Flexibility

A big problem of NPS is that it provides for a ‘non-withdrawable’ and compulsory Tier-I account and a voluntary Tier-II account. Anyone who wants a ‘withdrawable’ facility has to opt for the Tier-II option also. This is messy. The Committee, therefore, suggests that even in the case of a Tier-I account, an element of flexibility should be provided under the NPS to enable subscribers to withdraw funds to meet unforeseen and urgent expenses. For instance, subscribers could be allowed to take one repayable advance from their accounts after completion of 15 years of service and also permanently withdraw up to 50% of their contribution after completion of a minimum of 25 years of service to meet expenses on exigencies which should be appropriately listed by regulations.

While laudable, wouldn’t this introduce an element of arbitrariness? India is famous for red-tape and corruption. This regulation would just put an additional burden on the investors who wish to withdraw from their fund. Instead, the Committee should have suggested a minimum percentage of withdrawal from the Fund for a particular period. This would have been easier to understand and implement.



DA Bhatt

5 years ago

As on date nps is a heterogenus scheme in which private subscribers are at loss and govt subscrbers are protected. This type of discrimination may be removed and scheme may be coverted in to a homogeneus scheme. The rules for investment,service charges and return for subscribers of all categories must be samejust like EPF AND PPF.

Credit History & Credit Score: Poor Credit record of spouse may impact you

Mohan Jayaraman, COO, Experian Credit Information, addressed a workshop on credit information...

Premium Content
Monthly Digital Access


Already A Subscriber?
Yearly Digital+Print Access


Moneylife Magazine Subscriber or MSSN member?

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Some mistake in sugar production data for next season: Agriculture minister

The comments from agriculture minister Sharad Pawar came after food minister KV Thomas on Wednesday said that sugar output is estimated to rise marginally to 24.6 million tonnes in the 2011-12 sugar year (October-September) from 24.3 million tonnes this year

New Delhi: Agriculture minister Sharad Pawar today said there seems to be some mistake in sugar production data released by the food ministry and expressed confidence that output is likely to be between 25.5 and 26 million tonnes in the next sugar year, starting October, reports PTI.

Yesterday, food minister KV Thomas had said that sugar output is estimated to rise marginally to 24.6 million tonnes in the 2011-12 sugar year (October-September) from 24.3 million tonnes this year. The data was compiled based on the reports of cane commissioners of ten major producing states.

"My impression is that there is some mistake in the calculation. I will collect the proper figure by Monday and then give it to the food minister," Mr Pawar told reporters when asked about his views on the latest sugar production data released by the food ministry.

"I think production will be between 25.5 and 26 million tonnes. This year, monsoon has been good and reservoir position is also good. So the withdrawal (recovery rate) of sugar from sugarcane will be higher than the current season," he said.

Sugarcane output is pegged at 342.2 million tonnes in the 2011-12 crop year, as against 339.16 million tonnes in the 2010-11 crop year, ended June.

The sugar production estimate of Mr Pawar, who held the food ministry till mid-January this year, is in line with the initial estimate done by the Indian Sugar Mills Association (ISMA), the apex industry body for private mills.

Asked whether the lower output estimate by the food ministry would delay exports, Mr Pawar said: "Global prices will become unfavourable if there will be a delay. The government had to provide about Rs1,500 crore to mills as export assistance a few years ago. We do not want that situation."

Earlier this week, Mr Pawar had said the government should announce the policy for sugar exports by the middle of next month as the country is all set to witness bumper production in the 2011-12 sugar year.

"We have to allow exports. From October onward, we should announce a policy for sugar exports. A clear-cut message needs to be given to sugar mills about the quantity to be exported during the next six months," Mr Pawar had said.

Mr Thomas had yesterday said exports would be considered after the festival season.

The government has allowed exports of 2.6 million tonnes of the sweetener in the current sugar year, including 1.5 million tonnes in three equal tranches under Open General Licences (OGL). The remaining 1.1 million tonnes was the pending export obligation of the mills under the Advance Licence Scheme (ALS).

India is the world's second-largest sugar producer after Brazil, but is the biggest consumer of the sweetener. The annual demand stands at 21-21.5 million tonnes.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)