Four months after its launch, registering yourself to be a member of the New Pension Scheme is not an easy task.
Here's why. Till a few days ago, executives at the banks that have been designated points of presence to register subscribers and receive contributions, did not even know about the scheme.
And locating a branch of your convenience is still a herculean task. For instance, State Bank of India has a designated branch at Mumbai's Nariman Point and another one in distant Thane. ICICI Bank is only marginally better off with four branches in the western suburbs, one at Prabhadevi and another at Nariman Point.
Across India, which has over 600 districts, there are 564 designated branches for opening NPS accounts. The 22 registered PoPs managed to attract 1,109 forms between May and July 2009 - the three months during which it has been on offer.
"We have been allowed to offer NPS facility only at 26 branches when we have a network of 11,000 branches across the country. We were quite surprised that some smaller players have more presence but we have not been allowed to offer services at more branches," said a senior State Bank of India executive.
No wonder, NPS has managed to attract just over 1,100 subscribers so far.
Pension Fund Regulatory and Development Authority chairman D Swarup, the man who oversaw the entry of the latest savings product into the market, said the regulator had not put any curbs on the number of branches that could sell pension plans.
"We only asked them to ensure that there were at least 25 branches spread across three or more states. Why should we limit the number of branches? In fact, we want as many branches as possible," he said.
To sell the NPS plans, the designated PoPs have to earmark a dedicated broadband-connected computer, which all of them are willing to do, and also designate executives who would be allowed to deal with the investors since know-your-customer norms and fund transfer issues have to be dealt with.
While Swarup blames the intermediaries, the PoPs have their own set of grievances. An executive at one of the banks complained of difficulties in getting a digital signature. Another said PFRDA had not made application forms available and had not publicised the scheme adequately.
On its part, the regulator said it was only now that it had received a budget of Rs 10 crore that would be used for an investor awareness campaign.
Fund managers, the second set of intermediaries, are also complaining. With the fund management fee capped at 0.09 basis points (a basis point is a hundredth of a percentage point), the only way the six players, who were selected on the basis of technical and price bids, can make money is through higher volumes.
Though the business does not require too many hands, fund managers said that the cost, estimated at Rs 1.80 crore (Rs 18 million) a year, could only be covered if the assets under management were of the order of Rs 2,00,000 crore (Rs 2,000 billion).
The calculation is based on the assumption that each asset management company has four fund managers, each earning Rs 20 lakh (Rs 2 million) a year, while another Rs 1 crore (Rs 10 million) would be spent on administrative and other expenses.
Swarup said the regulator was not going to change the fee for either the PoP or for the fund managers. "If the incentive is increased, the returns go down. I am not going to allow that to happen," he said.
One of their complaints of the fee structure not covering transaction charges has partly been addressed, with the government announcing a waiver from the payment of securities transaction tax and dividend distribution tax.
But fund managers and the PoPs also cite the absence of tax incentives at the withdrawal stage as one of the deterrents for investors. Unlike a public provident fund or the employees provident fund, the maturity value of investment under NPS is taxable, unless you transfer the entire amount to an annuity offered by an insurance company that would earn a monthly pension.
"They are complaining as if they are going out to sell the scheme. From the discussion that we have had, it is quite clear that most PoPs are not ready to offer the scheme. They are multi-product sales points and they are pushing other products such as Ulips that earn them higher commission," said Swarup.
Besides, he said, PFRDA is pushing the government to provide tax incentives to NPS as well to bring it on a par with competing schemes. "Why do you need incentive at the withdrawal stage now, when you will only withdraw funds when you are 60?"
Tax apart, the fund managers and insurance companies that sell competing retirement plans have not been encouraging investors on the grounds that the transaction charges, if added up, are quite high. One fund manager has also prepared a chart to illustrate that. At the lower end, if you are contributing Rs 500 a month, so that it adds up to the minimum stipulated Rs 6,000 a year, the cost would add up to over 10 per cent of the contribution in the first year.
PFRDA said the problem would be addressed soon as the government is expected to take over a part of the cost. The regulator has suggested that the government fund the account maintenance charge of Rs 350 a year which is in addition to a transaction fee of Rs 10 whenever any amount is invested. According to the regulator's calculations, the outgo for the government would be Rs 20 crore (Rs 200 million) a year.
The finance ministry, an official said, has asked National Securities Depository Ltd, the designated CRA, to rework the cost. "Once we get the revised cost, we will take a call. But the cost burden is not much," the official said.
Despite the complaints, Swarup is not giving up. "To expect that the scheme will be a success from day one is wrong, especially when the incentive is low. It's a developing story, something like work in progress. I am going to be patient and not come under pressure and change the design or increase the incentive," he said.
