'NPS is not a faulty scheme': PFRDA Chairman Deepak Mohanty defends National Pension System

One of the strengths of the National Pension System (NPS) is its low cost. But that hasn’t helped it become as popular as it was expected to be. In an exclusive interview, Deepak Mohanty, Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), tells Business Today that sooner or later the NPS will take off because it is a good product. He speaks about why the NPS has not gained traction so far, and the efforts the PFRDA is putting in to make it successful. Edited excerpts:

Let’s begin with the Atal Pension Yojana (APY). It has around 46.8 million subscribers, while the NPS has about 13 million. According to you, why is the APY more popular than the NPS?

You are right, APY drives the numbers. But APY is for the lower income and deprived sections of society. And so there has been a great push, like in any other social security scheme. The APY is a government scheme where the government guarantees [the returns]. It is a defined contribution and defined benefit plan. One gets a pension, followed by the spouse, who gets a full pension, and then the accumulated corpus with interest comes back to you. And if you see, the return on the APY corpus is almost 9 per cent since inception. So it is not only a pension scheme but also a good savings scheme from a medium- to long-term perspective. And given that it is a kind of social security scheme and a small ticket scheme, the pension starts from Rs 1,000-5,000. So it is affordable. The NPS, too, started for the government. So, since 2004, anybody joining government service would have to join the NPS. And so that number is about 8.6 million. Today, we have 13.4 million subscribers, as this was extended to corporations and all citizens later. Also, private sector entities are coming in. The [private sector] subscribers’ number is around 4.8 million. While the absolute number would look small, we are seeing significant growth.

Why has the NPS not gained momentum?

There are three reasons. One is to do with corporations. We do not have many corporates coming in. For example, we have apparently 30,500 corporates who have signed up for the NPS, but they are providing NPS as an option to employees and not actively promoting the product. They take up what [other] employers offer—partially because employees go into the default scheme [EPF]. So even if it is given as an option, people are not taking it. This could not take off partly because of a lack of knowledge of the NPS. However, this is a very flexible and portable scheme. But people think you are locked in once you get into NPS. If somebody joins the NPS, they can make their own choice in selecting the scheme. Since its inception, it has delivered more than 12 per cent per annum in the equity scheme. And even on the corporate debt side, since inception, the scheme has given 9.3 per cent returns.

The government scheme has given 8.7 per cent since its inception. Talking about the central government scheme, it gives an annual return of 9 per cent. Secondly, there is a gen[1]der imbalance in the NPS. The gender composition is very good in APY, 45 per cent are women and 55 per cent men. You know, in rural and urban areas, the way self-help groups and other groups are driving the APY scheme, obviously, the gender balance is good. But if you look at NPS, the gender ratio is 30 per cent women and 70 per cent men at best, partly because of the structure of our organised employment. It is also partly because of a lack of cover[1]age or the perception that if the head of the family has a pension retirement account, nobody else needs it. Third, it could be a perception that the NPS is only for the salaried.

That’s not the case, as we understand. Any professional can opt for the NPS. There are small businesses that can take it, and there is no limit on how much money they can put into the NPS. Partly, we can do so [remedy the situation] through awareness. Partly, it has to be done through handholding. We are also expanding the scope of intermediaries, who could really do the handholding part. Earlier, regional rural banks (RRBs) were doing pretty well in the case of APY or pension plans. But as of now, they’re not doing anything on the NPS. Now, we have asked the RRBs to push NPS, too. We are even asking some co-operative banks that were traditionally not pushing NPS or APY. You must also know that we have retirement planners in terms of knowledge and outreach. They will train and disseminate information about these pension schemes.

What measures are you taking to promote NPS? How many distributors do you have for NPS currently? Why are they not promoting NPS the way MFs are promoted?

On the corporate side, we are engaging more with human resource departments. On the other side, we are reaching out to people directly through the points of presence (POPs). POPs provide NPS services through their network branches called POP Service Providers (POP[1]SP). This includes public and private sector banks, fintech companies and NBFCs. Further, we have allowed individual agents and BCs to sell NPS. As of July 31, there were 84 POPs with a total branch network of 88,282. Paying less commission is not an issue. One of the strengths of NPS is its low cost. It gives you a good return. I don’t want to compare it with the cost of the mutual funds. And, globally, it is the lowest-cost pension product. Everything takes time, and so will the NPS. It is a good product; we know it very well.