New Delhi: D. Swarup, chairman, Pension Fund Regulatory and Development Authority (PFRDA), spoke about the lukewarm launch of the New Pension System (NPS). Edited excerpts:
It’s been about a month and a half since NPS was launched. The initial response doesn’t seem to be good. Why?
Well, the initial response has been slow. But let me clarify (that) it’s on expected lines. We never expected a spectacular launch for the NPS for various reasons. The first, of course, is that our points of presence (POPs) are not yet prepared really to offer the scheme to customers who come in. And they will probably take little time. But I have taken up the issue with the chairmen of all the banks and other entities who have been appointed as POPs, and things are shaping up now. Things have improved over the last fortnight or so.
Looking for improvement: Pension fund regulator D. Swarup. Madhu Kapparath / Mint
And the other main reason happens to be the unfavourable tax treatment to the NPS compared with other long-term savings products like the public provident fund and employees provident fund, even the general provident fund of government employees prior to 2004. They are free at all stages—the first stage of contribution, at the time they earn income on that contribution and at the time of withdrawal. So they are exempt at all the three stages, whereas the NPS is taxed at the withdrawal stages. So that’s a big dampner in the launch of the scheme.
And the other important reason is our distribution model, which is different from distribution of insurance products or the mutual fund industry where there are selling agents.
Why did you opt for this model at all where you kept out the individuals completely and relied only on POPs which are banks? Have you taken up this issue strongly with banks because the 1 May deadline was known for a very long time? So to not be aware and not be able to sell it properly is pretty unacceptable, don’t you think?
Yes, I think it’s unacceptable. In fact, they had shown interest in becoming points of presence for quite sometime. All these entities were very much interested in selling the NPS product but obviously they have not done enough groundwork. Probably they thought that the launch date that I had announced may not be kept up because the Bill (that would empower the pension regulator) had not been passed, not realising that we were moving ahead because there was a government advice given to us, that we can open up the scheme without the Bill being there. But now I have taken it up and I am hopeful that things will improve from now onwards.
Are you hopeful that this budget will clarify the tax bit which you just mentioned about? And also the Bill, we have even the President making a mention of it in her speech, do you feel that the pension reforms that were held hostage for the last five years are really moving at a fast pace?
I am hopeful this time (because) it has been included in the President’s address itself that there shall be a regulator for the pension sector, which means that the PFRDA Bill would be reintroduced. And I am hopeful that the Bill will be passed in the ensuing session of Parliament. Come September and we should see the Bill being passed.