The New Pension System needs a comprehensive online facility
The majority of potential investors in this still-struggling scheme do not have an online platform for making payments. More points of presence are needed at various banks. Apart from these issues, the Bajpai Committee (set up by the Pension Fund Regulatory and Development Authority) proposals need to be implemented soon
In August 2010, the PFRDA (the Pension Fund Regulatory and Development Authority) constituted a committee to review the performance of the NPS (New Pension System) scheme which was headed by GN Bajpai, former SEBI Chairman. The committee submitted its report at the beginning of this month, suggesting various measures to improve the NPS. However, there are still some issues that require attention.
There is no online platform available for the majority of investors. As of now, only those investors who have registered for the NPS through ICICI Direct POPs (Points of Presence) can make online payments to their NPS accounts, which are debited from their linked bank accounts with ICICI Bank. The committee suggested that all bank POPs should make this kind of online facility available for their customers. Other banks—if they implement this feature (as suggested by the Bajpai Committee)—will make this feature available only to their subscribers from their respective POPs. But subscribers from non-bank POPs would be left in the lurch.
Subscribers do have an option to enrol for an ECS (electronic clearing services) facility where the payments would be debited from their requested bank account on a predefined date. However, withdrawal and deposit would be cumbersome for those who have applied for an NPS Tier II from where an individual can deposit and withdraw money at will (however, their contributions do not enjoy any tax benefits). Data indicates that nearly half of the investors for these accounts are from non-bank POPs. The number of branches are also fewer compared to bank POPs, meaning that investors would have to travel longer distances, causing a lot of inconvenience.
As of April 2011, there were approximately 13 non-bank POPs having almost 19% share in the total number of POP branches. They contribute around 25% to the total form collections and a whopping 49% of the total NPS Tier-II activations.
When Moneylife contacted the PFRDA, we were informed that it may introduce an online payment option for all subscribers through a payment gateway mechanism in the near future. No specific date was mentioned. Until then, subscribers will have to make do with the present options.
The NPS has been hampered by low participation ever since its launch in January 2004. In the past 7 years, only 12 lakh government employees have been registered with the NPS, a number which is on the lower side. The NPS was thrown open for all citizens in May 2009, and has failed to attract buyers as less than 50,000 (as of May 2011) individuals have subscribed to it so far. In terms of money managed by the PFMs (policy fund managers), as of 31 March 2011, the total assets under management by all PFMs amounted to Rs8,585 crore. Of this, the contribution from the non-government sector does not exceed Rs100 crore, of which a bulk has been contributed by two corporates-NALCO (National Aluminium Company Ltd) and NTPC (National Thermal Power Corporation), which have migrated their employees' pension schemes to NPS. This reflects the sluggish growth of NPS.
Some of the suggestions by the committee to increase penetration included that the postal department should increase the number of branches selling NPS, the mobile telecom service providers could extend NPS services through their customer care centres or through their extensive network of distributors-and PFMs should be allowed to have POPs to sell NPS. Along with this, the high cost of NPS was highlighted and a suggestion to lower costs and to increase the incentive to the distributor was given.
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