PFRDA planning aggressive growth
New Delhi: Financial institutions and post office branches will soon get paid better for enrolling people for pension schemes as the Pension Fund Regulatory and Development Authority (PFRDA) is set for an aggressive expansion of subscriber base to counter the socioeconomic challenges of an ageing population.
The regulator wants pension coverage to go up significantly over the next four-five years as only about 60-70 million people, a small fraction of the country’s 500 million working population, are covered by any form of formal pension system, PFRDA chairman Hemant Contractor said in an interview.
The urgency to get more working people to sign up for retirement benefit schemes arises from the trend of elderly population growing at twice the pace of the general population in the last decade, pointing to serious socio-economic challenges to the government in the future, including the need for stepping up health spending.
Contractor said the regulator currently pays agencies that enrol people for pension schemes Rs120 for every new account in addition to Rs20 for every transaction by the subscriber.
“It is a matter of debate if what we pay is enough or not. They always feel it is not enough. We are taking a relook at the incentive structure to make it a bit more attractive,” said Contractor.
He declined to specify the quantum of increase the regulator will finalize after discussions.
“Our pension penetration is very poor (about 14% of the working population) because of the fact that the informal sector accounts for a large part of the labour market. The challenge is to reach out to the informal sector,” he said.
“NPS (National Pension System) is a low-cost, post-retirement benefit scheme with very attractive returns but awareness about the scheme is low. It is a good idea to give further fiscal incentives to the subscribers and also encourage banks and other institutions to enrol more people into NPS as they have a large customer base,” said Gopal Kumar, actuary and economist at actuarial consulting firm Radgo & Co.
According to a 2016 report by the Central Statistics Office (CSO), the elderly population of 60 years or more expanded at the rate of 35.5% in the 2001-2011 period, while the growth rate in the general population was slower by half at 17.7%.
The report pointed out that 8.6% of the total population of 1.21 billion—104 million people—were at 60 years or above. Slightly less than three-fourth of them live in rural areas, where pension coverage is also poor. At the age of 60, the average remaining length of life is 17 years, the report said citing the 2011 population census.
The population of elderly citizens is forecast to reach about 180 million by 2026, the PFRDA chairman said.
“With so many old people and low pension coverage, we could be faced with a problem. That is why we have been asking banks to step up enrolment so that these people do not face any hardship in their old age. Fifteen years ago, average life span of the population was 62.5 years. Now it is 68 years,” he said
NPS, introduced in 2004 by PFRDA for government employees and opened to every citizen in 2009, now has a corpus of Rs2 trillion with a subscriber base of over 16 million people.
The subscriber base includes central and state government employees and members from private sector enterprises including the informal sector. The Atal Pension Yojana, a scheme launched in 2015 for unorganized sector workers, is part of this subscriber base with about 5.8 million beneficiaries accounting for a corpus of about Rs2,500 crore.
The government contributes to the pension corpus.