Sell the idea
The Indian Express Tags : ie, editorial
The Indian Express Tags : ie, editorial
Posted: Wed Dec 21 2011, 00:10 hrs
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The pension bill is one good news after a long time. To set its fiscal house in order, India moved away from a “defined benefit” to a “defined contribution” regime for individuals who join the government on or after January 1, 2004. Passing of the Pension Fund Regulatory and Development Authority (PFRDA) Bill will give statutory backing to the regulator. Not only that, this small step does the rather big job of removing the blemishes of the government, accused of bringing policy reforms to a standstill. By agreeing to get back to Parliament whenever it plans to raise the foreign investment limit beyond 26 per cent, the government has not yielded much. In fact, so is the case with the Insurance Act, the amendments for which have been rejected by the standing committee on finance. The other key demand relates to offering an assured-returns variant of the pension product. This only adds to an investor’s choice. Based on one’s risk profile, one can opt for assured but low returns or hope for higher but market-linked returns.
The enactment of the PFRDA legislation itself is just a starting point. Initially, the New Pension Scheme was restricted only to government employees. In May 2009, it was extended to all citizens. This, many expected, would result in a rush of investors. On the contrary, it has been just a trickle. In the past 30 months, only 56,000-odd people became NPS subscribers. Clearly, there is a structural flaw in the way the product is marketed. There are two ways to do it. The difficult way is to persuade large employers to see the benefit of NPS and shift to it. The easier way, as recommended by the G.N. Bajpai committee set up to review the implementation of informal sector pension, is to handsomely reward distributors. They would then sell the product, which experts agree, needs to be pushed.
The PFRDA will do well to determine the right kind of incentive structure to sell the product in the retail sector. But the most inclusive and difficult way will be to get large employers to buy the NPS idea. The government also needs to clear the air on regulatory overlap since many insurance companies already offer pension products. Mutual funds may soon do this. Having created a regulator for pension products, it is only logical that all such products come under the regulatory purview of the PFRDA.
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The pension bill is one good news after a long time. To set its fiscal house in order, India moved away from a “defined benefit” to a “defined contribution” regime for individuals who join the government on or after January 1, 2004. Passing of the Pension Fund Regulatory and Development Authority (PFRDA) Bill will give statutory backing to the regulator. Not only that, this small step does the rather big job of removing the blemishes of the government, accused of bringing policy reforms to a standstill. By agreeing to get back to Parliament whenever it plans to raise the foreign investment limit beyond 26 per cent, the government has not yielded much. In fact, so is the case with the Insurance Act, the amendments for which have been rejected by the standing committee on finance. The other key demand relates to offering an assured-returns variant of the pension product. This only adds to an investor’s choice. Based on one’s risk profile, one can opt for assured but low returns or hope for higher but market-linked returns.
The enactment of the PFRDA legislation itself is just a starting point. Initially, the New Pension Scheme was restricted only to government employees. In May 2009, it was extended to all citizens. This, many expected, would result in a rush of investors. On the contrary, it has been just a trickle. In the past 30 months, only 56,000-odd people became NPS subscribers. Clearly, there is a structural flaw in the way the product is marketed. There are two ways to do it. The difficult way is to persuade large employers to see the benefit of NPS and shift to it. The easier way, as recommended by the G.N. Bajpai committee set up to review the implementation of informal sector pension, is to handsomely reward distributors. They would then sell the product, which experts agree, needs to be pushed.
The PFRDA will do well to determine the right kind of incentive structure to sell the product in the retail sector. But the most inclusive and difficult way will be to get large employers to buy the NPS idea. The government also needs to clear the air on regulatory overlap since many insurance companies already offer pension products. Mutual funds may soon do this. Having created a regulator for pension products, it is only logical that all such products come under the regulatory purview of the PFRDA.
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