* CHRONICLE - PENSIONERS CONVERGE HERE, DISCUSS ISSUES OF THEIR CHOICE * CHRONICLE - WHERE EVEN THE CHAT COLUMN PRODUCES GREAT DISCUSSIONS * CHRONICLE - WHERE THE MUSIC IS RISING IN CRESCENDO !

               
                                   

Wednesday, January 28, 2015

We are the lowest cost pension providers in the world today, says PFRDA Chairman

The passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013, in September, 2013 and its subsequent notification in February, 2014 was a major milestone in the history of pension reforms in the country. Armed with statutory powers, PFRDA has the mandate to develop, promote and regulate the pension industry with its flagship programme, National Pension System (NPS), to serve the retirement needs of the people.


Hemant G. Contractor, who took over as the Chairman of PFRDA about three months ago, is busy drawing up comprehensive plans to make NPS a robust scheme.
He spoke to The Hindu about new regulations, distribution and other plans. Excerpts
What have been the significant developments since PFRDA became a full-fledged statutory body?The Act has given us statutory powers. We are now in a position to implement different variants of NPS and enforce their implementation.
We are now finalising many regulations, which will give teeth to the Act. There are about 15 regulations currently under drafting.
We will see those notified in the gazette over the next month or so. These regulations address various issues such as consumer protection and responsibility of the intermediaries, among others. Ever since the NPS was announced, investment of funds has been taking place. But there is no real supervising authority. But the Act has given us more teeth and through the upcoming regulations we are trying to make everybody’s roles and responsibilities a lot clearer.
How has been the journey in the implementation of NPS across categories?
Overall, we have opened about 80 lakh accounts with a corpus of Rs.73,000 crore. There are four variants of NPS. We have one scheme for central government employees (except armed forces), the first one to get launched. All Central government employees are members of NPS. We have now over 17 lakh Central government staff covered under the scheme.
The second one is for State government employees and we have about 23 lakh employees enrolled. We have been seeing very good growth in this category and they actually surpassed the number of Central government subscribers. And, 27 out of 29 States have joined NPS. Tripura and West Bengal are yet to join.
The third variant is Swavalamban introduced in 2010 for the unorganised sector. Under this category, we have over 35 lakh subscribers with a corpus of Rs.1,500 crore.
The fourth one is for the private sector. But, we are planning to make some modifications in this scheme so as to get more people on board.
How about the response from private sector?We have now about 1,600 corporates enrolled for NPS and over 4.5 lakh employees have joined this scheme. Private sector is definitely serious about joining the scheme.
But one thing that is preventing faster enrolment is the fact that we still do not enjoy the EEE status, which employee provident fund (EPF) and PPF schemes have. [EEE status (exempt-exempt-exempt in income tax jargon) refers that money deposited in EPF or PPF schemes is exempted from income tax under section 80C; any interest or returns earned during the accumulation phase is also exempted from income tax; During withdrawal (after maturity) the money one gets is also exempted from income tax].
We have taken this up very strongly with the government to permit EEE status for NPS as well. We are hopeful that the upcoming budget will talk about this subject.
What has been the progress in covering people in the unorganised sector?Presently, only about 12 per cent of the working population is covered by any form of pension scheme. But most of the people covered by pension schemes are in the organised sector, that is, people working in manufacturing firms, civil servants and defence sector. But, the unorganised sector is more or less totally uncovered except those who have come on board under Swavalamban, which has been launched to cater primarily to economically disadvantaged sections of the society.
The scope for growth in this category is enormous. Because, we have about 40 crore people in the unorganised sector and majority of them have no access to any formal system of old age pension security.
What are the initiatives being planned to increase the coverage in informal sector?We have big plans for Swavalamban. The key challenge is the lack of awareness and also the fact that the income level is very low in the unorganised sector. Of course, pension is not an easy product to push through. It requires some awareness and understanding.
So, it needs a bit of pushing and education. But it is all part of financial inclusion programme Jan-Dhan Yojana.
Swavalamban has been made one of the pillars of this programme. It is going to be covered in phase-II, which will start in August this year. With the inclusion of Swavalamban in Jan-Dhan Yojana in phase-II, we hope to receive much greater publicity and coverage. So more people will become aware of this product and help us increase the subscriber base.
What is the update on extension of government support to Swavalamban?The trends are favourable for NPS because it is a low cost product. Also, the attraction point in Swavalamban is that Central government makes a contribution of Rs.1,000 per account provided the account holder also contributes a minimum of Rs.1,000.
However, one thing that is holding back growth in Swavalamban is uncertainty over the continuation of government’s contribution. The promotional advertisements of the government said it would be there only till 2016-17.
We have taken it up very strongly with the government to extend it for another 25 years or so. If that happens, we should see a surge in the numbers.
So, once that uncertainty goes, with the government making an announcement on extension, a lot of subscribers will come on board.
Since stock market is moving up, will NPS provide better returns?Our returns have been very good and that is one of the major attractions of NPS. Also, we are the lowest cost pension providers in the world today.
The product has been designed in such a way that costs are kept to the barest minimum to make the product very attractive. So, it enables us to reach out to the unorganised sector confidently.
Because, every penny matters for people in this segment.
A low cost product such asSwavalamban is definitely an attractive one as there is no other pension scheme to serve the unorganised sector. If you look at the returns, we have been getting an annual return of 9.25 per cent over the past five years from the investments.
From equities, we have been generating a return in excess of 12.5 per cent in the same period.
With these returns and performance, we would like to see more and more subscribers coming onboard.
So, what are your immediate objectives?We would like to increase the coverage in the next five years especially in the unorganised sector.
Presently, only 0.8 per cent of the people in the unorganised sector are covered by pension schemes.
We would like to take that to at least 4-5 per cent in the next five years. All that requires is huge amount of awareness creation and modification in the processes.
 ========================================================================

 

No pension for most private sector retirees



According to a CRISIL report, only 8% of India's private sector employees are covered by any post-retirement benefits.

Only 8% of employees who retire from the private sector in India are covered by pensions while the remaining 92% have no income security or health insurance, according to a recent report released by Crisil, a ratings agency.  Fiscally, the report adds, the government cannot afford to ensure social pensions to a large populace that is also increasing along with life expectancy.

IndiaSpend had earlier reported on demographic challenges before India – both for youth and for the elderly. We have explored how India’s ageing population is a concern for policy makers and analysed how some states in India have witnessed a fall in fertility rates, leading to a proportionately higher population of the elderly, implying an increasing burden on the working population.

We have also raised concerns about the future of the youth with low employment levels in the country.  Other than better and more employmentand skill development, the government also needs to focus on ensuring financial stablility for the current young generation. With falling fertility rates, old age dependency ratio will rise in the coming decades, and it will be fiscally burdensome to support the aged.
The Crisil report has built pension scenarios for India’s retired population in the future decades. According to their calculations, India’s best case can be where the economy can avoid fiscal burdens.

The estimates in the above scenarios are built on the assumptions about the government sector pension liability, retirement corpus and other demographic assumptions. The scenarios are feasible only if private pension cover is increased.

With private cover at only 8%, India’s aged population will be in a crisis, post retirement.  The report has suggested that we need more investments in private pension sector.

Ageing population adds as a fiscal cost. Currently, that cost is 2.2% of GDP in India. And since we know that India’s population is going to be ageing in the future, policy demands that the burden should not increase. The scenario built by Crisil works out to 3.4% of GDP in 2030 and 2.6% of GDP in 2050.

We have seen in our earlier report  that India’s population will be stable by 2026. Which means fewer babies will be born. So, as years pass by, people in the working age group (15-59 years) will be comparatively lower than the earlier decades. Since, this group adds wealth to the economy while the younger and older population are dependent on them, it may create a financial imbalance.

By 2050, the proportion of the dependent population in India will be more than double the current level. Scandinavian and western European countries were the first ones to face the challenges of ageing population. Sweden, for example, has old age dependency ratio as high as 27.9% currently and Germany is at 31.6%. Global Age Watch Index, published by HelpAge International, an NGO dedicated to the rights and challenges of the elderly around the world, last year provides some international comparisons.

By: Saumya Tewari
-