Panel moots total revamp of dysfunctional pension scheme

A committee set up to revive the flagging New Pension Scheme launched in May 2009 for the informal sector by the Pension Fund Regulatory and Development Authority (PFRDA), the sector regulator, came out with a report last week where it has proposed a complete change in its incentive and fee structure.

If the recommendations of the committee under former Securities & Exchange Board of India chairman, G N Bajpai are implemented, it would make NPS, which has so far been dead on the water, an attractive long-term retirement savings product. The scheme provides various investment options and can help build a good post-retirement corpus in the long term.

The recommendations of the 'Committee to review implementation of informal sector pension', or the Bajpai committee as it is known, have been put up on the website of the PFRDA, inviting comments.

To take NPS to the masses, the committee has said the minimum subscription required should be slashed to Rs1,000 from Rs6,000 a year. It has also recommended that the Central Recordkeeping Agency (CRA) charges be reduced significantly, and fund management charges be revised upward.

The CRA charges currently stand at Rs280 a year. For a customer who invests the minimum Rs6,000, it turns out to be more expensive than most other financial products. Once the charges come down, NPS would become a very competitive product and will attract much larger number of investors.

The committee has suggested that the NPS be marketed through the postal department, FMCG companies and telecom operators to leverage their vast reach.