While PFRDA has worked to promote its flagship National Pension Scheme since its inception in 2009, Hemant G Contractor, Chairman, Pension Fund Regulatory Development Authority, says that there are still miles to go as the NPS subscriber base is yet miles away from the desired number. Contractor attributes this to the lack of financial awareness among people while stressing the need to have a pension plan considering growing life expectancy.
In a recent interview with Financial Express Online, Hemant Contractor spoke about various issues ailing the smooth growth of the National Pension Scheme. He discusses PFRDA’s future plans and challenges. He also answers why the annuity component in the withdrawal of NPS corpus may not be going away any sooner.
Here are the edited excerpts of PFRDA Chairman Hemant Contractor’s conversation with Prachi Gupta and Shaleen Agrawal.
How has your experience been in PFRDA since joining it in 2014?
Since I come from the banking background, pension policy was an interesting and a new change. When I joined, it was in its nascent stage. In the four years that followed, the growth has been good. Nevertheless, there is so much yet to be done as so many people still are not on-board the pension plan.
Why are Indians hesitant to join the National Pension Scheme?
The NPS plan is voluntary and it takes persuasion for people to actually make such a long time commitment. It has not been easy to sell the scheme since the needs of the people are immediate. Financial literacy among people is low, pension literacy is lower. People don’t understand the importance of enrolling for a pension scheme. What escapes people is that the average lifespan has increased and hence more and more people should have a pension cover. Also, the income-levels in non-organised sectors are low which results in constrained participation.
Which sectors remain largely untouched by the NPS?
People in the organised sectors, government employees, and well-off people are well covered by the plan. However, those employed in the non-organised sector and the ones who are not doing well financially remain largely untouched.
What has been the response in general towards the pension plans?
We got a generally good response to Atal pension Yojna which was launched as a replacement to previous Swavalamban Yojana. We are touching 1.5 crore subscribers, with a total corpus of about Rs 2,95,000 crore.
NPS comes off as a very complicated scheme even to well-educated people. The annuity is a complicated concept. Is there a scope to simplify it?
NPS does require some explanation and educating people about the same is a major challenge to us. The irony is that annuity is provided by the insurance company. The issue here is that we undertake only the accumulation part of the policy. Had we provided the annuity, it would have been in one package.
Do you think that the 40% of the corpus getting locked up in annuity is a deterrent in people signing up for NPS?
I understand that annuity has a lot of drawbacks. People don’t like the idea of it. However, the appealing part of the annuity is you get an assured payment which is a source of comfort for so many people. People need to have something to fall back on in their retirement years.
Can we expect to do away with the annuity component?
Annuity is not going anywhere, however, there can be some improvements. If it were left to the people, they would rather have 100% salary drawn at the end and splurge it all together. We don’t want that to happen. We want them to have something instead of falling back on their children.
Will the changes proposed to the NPS be applicable to old-subscribers as well?
No. Only to new subscribers. We have proposed a few major changes. First, the government contribution is to rise from the previous 10%. Secondly, government employees will be able to decide whom to place the money with. This is for the new-flow. However, for those who wish to get enrolled in the new scheme, they will have a provision to convert to the same.
Do you think that the period between the old scheme and the new scheme will see a slowdown in the subscription?
A slowdown hits us if we are not doing well. We are doing well already. But once the scheme is announced, we will be better off.
What are your current challenges?
We really need to improve the awareness level among people. Currently, we are way off our NPS target. We need cooperation from more tax-payers as it benefits everyone. Also, we are trying to get annuity tax-free. Greater support from government is also needed as we have suggested few changes to the Atal Pension Yojana.
What are PFRDA’s future plans?
We aim to add 50 lakh additional subscribers to Atal Pension Yojana. While NPS is growing by 30-40% by year, it is also gaining popularity. We look forward to having more people in it.
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