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Saturday, April 10, 2010

Government’s sweetener pill to further boost NPS

Some major tweaks to the NPS in addition to the planned government contribution of Rs1,000 per account are set to provide a much needed leg-up to the nascent pension scheme

The Centre is planning some additional tweaks to the still-nascent New Pension Scheme (NPS) to attract the investing public. Sources from the regulator, the Pension Fund Regulatory and Development Authority (PFRDA), tell Moneylife that these changes will provide a significant boost to the struggling pension plan initiative from the government.

The PFRDA is apparently in talks with the central record-keeping agency, the National Securities Depository Limited (NSDL) to reduce the cost of record-keeping. If NSDL obliges, it would significantly drive down the cost of maintaining an NPS account, which would enable thousands of low-income category people to start their own accounts.

An official from PFRDA revealed some of the initiatives being taken up. Deepa Kotnis, general manager, PFRDA said, “We are working on reducing the cost. For a very low-income person, the current cost might be a lot, even though it is the cheapest product available. We are also trying to incentivise enrolment by attaching some promotional incentive to it.”

Already, the NPS is among the least expensive investment products in the offering. With such low expenses, it is a product tailor-made for the requirements of the masses.

To encourage people to save in the NPS, the recent Budget had announced the government’s intention to contribute Rs1,000 per year to every new NPS account opened this year. The scheme, ‘Swavalamban’, will be extended to those who join NPS with a minimum contribution of Rs1,000 and a maximum contribution of Rs12,000 per year during financial year 2010-11.

Speaking to Moneylife, Ms Kotnis said, “This is a direct subsidy for investors. The finance minister has set aside Rs100 crore for this project. We are hoping that this would benefit lakhs of investors. There are a lot of low-income people in the unorganised sector who would be very keen to get this Rs1,000 benefit.

Ultimately, it would add up to Rs4,000 as the scheme is extended for three more years. So not only is this a much cheaper product, but there is a direct subsidy coming into the investor’s account. The onus is now on all the points of presence (POPs) to popularise this initiative and get people on board during this financial year.”

Interestingly, the PFRDA is also thinking of extending this benefit to all the existing subscribers who have invested prior to this financial year. Ms Kotnis said, “We do not want to leave out people who have joined the scheme last year. So we are working on how to ensure that these investors are also included. After working out who all would be eligible for this benefit, we will see to it that these people are also given the benefit.”

Finance minister Pranab Mukherjee had also urged State governments to make a matching contribution to these NPS accounts. Some States like Haryana and Karnataka have already started offering the added contribution of Rs1,000 per year. This has taken the total government contribution to Rs2,000 per year.

With these initiatives on their agenda, the government and the regulator are indeed taking the pains to ensure that the NPS finds its rightful space in the minds of the investing public.

Source: http://www.moneylife.in/article/8/4702.html

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