The New Pension Scheme (NPS), which should have become an important part of
the country's savings landscape, is dead, at least for the time being. This,
more or less, is what a government committee set up to examine the NPS is
saying.
The recommendations of the 'Committee to Review Implementation of Informal Sector Pension', (the Bajpai committee on NPS reforms) have been put up on the website of the Pension Fund Regulatory and Development Authority (PFRDA ), inviting comments.
The part of the report that has attracted the most attention is the recommendation that a 0.5% commission should be paid for selling NPS. While this itself is a huge departure from the original structure, it is actually not the most important part of what has been said.
In a cogent and lucidly-written report, the committee has said that practically everything about the current design of the NPS is flawed. No one is willing to buy it and no one is trying to sell it. Almost all the money that has flown into the NPS comes from government employees who are part of it. We've been hearing recently that only about Rs 100 crore has come into the NPS by choice.
However, the report reveals that even this sum is almost entirely due to two corporates shifting their pension system to the NPS. Direct participation by end-users is close to zero. In other words, the NPS has been a complete failure.
There's one aspect that hasn't attracted any comment, and that is the failure of the governments - both state and central - to properly implement the government employees part of the NPS. The way it was supposed to work was that government employees under the NPS were to have an account which they would be able to monitor and watch grow.
Starting 2004, these investments - with their equity allocations - would have given superb returns that would have been far superior to the plain fixed-income ones. What's more important, we would have had about 12 lakh (the report's number) government employees who would have had the personal experience of growing their future wealth through the NPS.
This never happened and the implementation of the NPS is in complete mess. The money wasn't invested for years after 2004. Government employees don't have personal accounts with the NPS's CRA (central record-keeping agency). They don't have any first-hand information of how the investments done in their name is being managed. They don't know what is being earned, they don't know which fund manager is doing well and whose performance is poor.
Read more in economics times
The recommendations of the 'Committee to Review Implementation of Informal Sector Pension', (the Bajpai committee on NPS reforms) have been put up on the website of the Pension Fund Regulatory and Development Authority (PFRDA ), inviting comments.
The part of the report that has attracted the most attention is the recommendation that a 0.5% commission should be paid for selling NPS. While this itself is a huge departure from the original structure, it is actually not the most important part of what has been said.
In a cogent and lucidly-written report, the committee has said that practically everything about the current design of the NPS is flawed. No one is willing to buy it and no one is trying to sell it. Almost all the money that has flown into the NPS comes from government employees who are part of it. We've been hearing recently that only about Rs 100 crore has come into the NPS by choice.
However, the report reveals that even this sum is almost entirely due to two corporates shifting their pension system to the NPS. Direct participation by end-users is close to zero. In other words, the NPS has been a complete failure.
There's one aspect that hasn't attracted any comment, and that is the failure of the governments - both state and central - to properly implement the government employees part of the NPS. The way it was supposed to work was that government employees under the NPS were to have an account which they would be able to monitor and watch grow.
Starting 2004, these investments - with their equity allocations - would have given superb returns that would have been far superior to the plain fixed-income ones. What's more important, we would have had about 12 lakh (the report's number) government employees who would have had the personal experience of growing their future wealth through the NPS.
This never happened and the implementation of the NPS is in complete mess. The money wasn't invested for years after 2004. Government employees don't have personal accounts with the NPS's CRA (central record-keeping agency). They don't have any first-hand information of how the investments done in their name is being managed. They don't know what is being earned, they don't know which fund manager is doing well and whose performance is poor.
Read more in economics times
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