NOTA POPULAR SCHEME

INTEREST IN THE NATIONAL PENSION SYSTEM HAS DWINDLED AMONG NON-GOVERNMENT EMPLOYEES THANKS TO THE PROLIFERATION OF OTHER LUCRATIVE RETIREMENT PLANNING OPTIONS

-  NAVNEET DUBEY

LAUNCHED AMID MUCH fanfare in 2003, the New Pension Scheme was expected to herald a new dawn in India’s financial architecture. The Pension Fund Regulatory and Development Authority was set up to oversee the scheme, and by 2009 the government opened it up to all citizens—it was made mandatory for government employees recruited after January 1, 2004.

The scheme, renamed the National Pension System (NPS), represented a major departure from the past, at least in the public sector, since it involved defined contributions from employees that are matched by the employer. Before NPS, the government offered defined benefits schemes that guaranteed a certain pension.

But as the NPS nears its twentieth anniversary, its private sector subscriber numbers have failed to match those expectations, despite its low-cost model. Now, even in the public sector, there have been increasing calls to shift back to the old pension scheme (OPS) and its defined benefits, a demand that has found its way into election of manifestos in state after state.

The biggest reason for the low popularity of NPS is the presence of more lucrative market-linked options. On this front, its main challenger, perhaps, is the mutual fund (MF). Consider this: The total number of MF accounts stood at 151.4 million as on July 31, while NPS subscriptions stood at just 16.8 million as of August 5. Besides, the Indian MF industry’s assets under management (AUM) stood at ₹46.28 lakh crore, compared with the NPS AUM of ₹9.65 lakh crore. And this is despite studies indicating that the equity returns offered by the NPS is almost equal to those provided by equity MFs.