Bajpai committee suggests guidelines for New Pension Scheme
Post offices, telecom companies, pension fund managers, FMCG firms and third-party corporate agents may soon offer products of the New Pension System if the
recommendations of Bajpai committee are accepted.
Post offices, telecom companies, pension fund managers, fast moving consumer goods (FMCG) companies and third-party corporate agents may be used to offer products of the New Pension System (NPS) if the recommendations of a committee headed by G.N. Bajpai, former chairman of stock market regulator Securities and Exchange Board of India (Sebi), are accepted.
To increase the reach of the pension scheme, the committee has also recommended lowering the minimum annual subscription amount from Rs 6,000 to Rs 1,000.
It also recommends extending the Swavalamban scheme beyond 2010-11, which encourages people from the unorganised sectors to save for their old age by entitling them to a government contribution of Rs 1,000 for each new NPS account opened during 2010-11. The contribution is available for accounts with an annual contribution between Rs 1,000 and Rs 12,000.
The Pension Fund Regulatory and Development Authority (PFRDA) had set up the Bajpai committee in August 2010 to resurrect the NPS which has failed to take off since its launch in May 2009. It has found only around 50,000 takers among a workforce of over 40 crore people without any pension plan.
"The NPS has remained unpopular, possibly due to the faulty assumption that pension products do not need to be sold," the panel said in its report. "The biggest problem with the NPS is the absence of any clear idea about who owns the customer. The existing unbundled architecture has...ended up fragmenting responsibility for not only attending to customer grievances but for also selling the product to potential contributors."
In order to lower the cost for subscribing to the NPS for small investors, the panel has recommended replacing the fixed commission with an ad valorem fee of 0.5% of the subscription amount, subject to a minimum of Rs 20 and a maximum of Rs 50,000. The NPS currently charges a flat annual maintenance charge of Rs 280 and a transaction fee of Rs 26 for each investment apart from account opening and registration fees, plus 0.0084% per annum. High fees make the NPS untenable for small investors.
"The PFRDA should commission fresh research into calculating the costs of NPS delivery, especially in the light of the emergence of new cost-effective transaction channels," the report said.
It has also recommended encouraging banks to provide online access to the NPS, bringing it within easy reach of Internet-savvy investors.
To make investing in the NPS more attractive, it may also offer the capital protection feature. "As investors in NPS are investing for post-retirement income prolonging their cash inflows during old age, these investments should be protected against losses for the NPS to be an appropriate retirement saving product," the panel said in its report.
The report of the panel, which was presented to the PFRDA on 1 July 2011, has been forwarded to the Union finance ministry. The PFRDA has also sought comments from the public and stakeholders on the report.
To increase the reach of the pension scheme, the committee has also recommended lowering the minimum annual subscription amount from Rs 6,000 to Rs 1,000.
It also recommends extending the Swavalamban scheme beyond 2010-11, which encourages people from the unorganised sectors to save for their old age by entitling them to a government contribution of Rs 1,000 for each new NPS account opened during 2010-11. The contribution is available for accounts with an annual contribution between Rs 1,000 and Rs 12,000.
The Pension Fund Regulatory and Development Authority (PFRDA) had set up the Bajpai committee in August 2010 to resurrect the NPS which has failed to take off since its launch in May 2009. It has found only around 50,000 takers among a workforce of over 40 crore people without any pension plan.
COSTLY PLAN: Due to the current fixed charges for an NPS product, a subscriber who transacts six times in a year has to pay Rs 526 as charges in the first year.
In order to lower the cost for subscribing to the NPS for small investors, the panel has recommended replacing the fixed commission with an ad valorem fee of 0.5% of the subscription amount, subject to a minimum of Rs 20 and a maximum of Rs 50,000. The NPS currently charges a flat annual maintenance charge of Rs 280 and a transaction fee of Rs 26 for each investment apart from account opening and registration fees, plus 0.0084% per annum. High fees make the NPS untenable for small investors.
"The PFRDA should commission fresh research into calculating the costs of NPS delivery, especially in the light of the emergence of new cost-effective transaction channels," the report said.
It has also recommended encouraging banks to provide online access to the NPS, bringing it within easy reach of Internet-savvy investors.
To make investing in the NPS more attractive, it may also offer the capital protection feature. "As investors in NPS are investing for post-retirement income prolonging their cash inflows during old age, these investments should be protected against losses for the NPS to be an appropriate retirement saving product," the panel said in its report.
The report of the panel, which was presented to the PFRDA on 1 July 2011, has been forwarded to the Union finance ministry. The PFRDA has also sought comments from the public and stakeholders on the report.
