The Atal Pension Yojana introduced recently by the Centre (aimed at the common man) is likely to metamorphose the pension sector in India, which already has over ₹8-lakh crore of assets under management. The funds are managed by various entities, of which, the Employees’ Provident Fund Organisation (EPFO) and the National Pension System are the major ones, besides a couple of mutual fund retirement schemes and ULIP pensions offered by insurers. In an interview to Business Line , Supratim Bandyopadhyay, MD and CEO of LIC Pension Fund, provides a perspective on how the pension sector will shape up, going forward. Edited excerpts:
What is the change that you see following introduction of the Atal Pension Yojana?
In one year the growth of NPS that I have witnessed is phenomenal. People are ready to contribute. Everybody knows the benefits of a pension scheme. Everybody needs pension, especially the unorganised. Corporates have their own group plans for pension and gratuity. The target is retail customers and the unorganised sector.
It is not like the insurance business where everything is in-house. Under the National Pension Scheme each function rests with a separate body. The pension fund manager’s (PFM) job is only to do fund management.
Channel is the point of presence (PoP). Banks, Stock Holding Corporation of India (SHCIL), LICHF Financial Services all are PoPs.
NSDL is the central record-keeping agency (CRA) which issues the Permanent Retirement Account Number (PRAN) to subscribers. This is where all the data resides. Money rests with the trustee bank — Axis Bank. The CRA instructs the trustee bank to give the money to the PFMs (LIC PF if a subscriber has ticked on it). The CRA will then issue a PRAN. There are plans to empower PoPs to issue PRAN. SHCIL is the common custodian that provides valuation support. The net asset value (NAV) is available with NSDL on a daily basis.
Where do you see the subscriber base moving, going forward?
Atal Pension Yojana will draw in many new customers. Many will come as the scheme is connected to Jan Dhan Yojana. Customer data with banks are likely to be distributed to three public sector PFMs. Normally, they are given in equal proportion.
Is the asset allocation pattern rigid and the same across all subscribers?
No, two choices available. One is the auto choice and the other is called active choice. In auto choice, it was felt that the risk appetite will be lower. Hence, the subscriber ends up at 10 per cent equity, 10 per cent corporate debt, and 80 per cent government securities at the age of 55 when the scheme ends. Under active choice also, at no point in time can one choose more than 50 per cent in equity, even at 55.
Why were pension fund managers given a five-year tenor when the pensions business is long term in nature?
I can’t say what exactly transpired; maybe, they wanted to see/review performance before giving longer tenor licences. Maybe from here on they might give longer tenor licences.
A word on intermediary commissions…
I believe the regulator is seriously thinking on intermediary commissions. I believe anything can come, it’s early days. Unless you reach out to people, they won’t subscribe however good your product. Awareness has to be built.
Queries on pensions are increasing with the extra tax deduction for NPS of ₹50,000. It has been phenomenal, last year AUM grew by 70 per cent.
Migration from EPFO to NPS is also being discussed. The Labour Ministry is looking into it. Unless distribution is under our control it is difficult. There is thought being put to bundling. Whatever I do, my primary goal is to reach out to the customer. When the customer base grows at a huge rate, everybody in the chain will benefit.
Tell us about the impact of e-KYC and the proposed single demat account on the pensions business.
These will make the process easier.
Why is AUM in the pensions business concentrated with a few types of subscribers — government and the organised workforce?
It again comes to the same question: where is the distribution channel to reach small entrepreneurs who employ, say, two-three persons? We need foot soldiers. We have discussed this with our regulator.
There is concern on whether the current commission structure would keep a distributor enthused.
If an insurance agent is allowed to add NPS in his bouquet, he would accept a low commission structure provided volume is high as he has a ready customer base.
Moreover, there is no upside to contribution as contribution is proportional to the amount of pension a person wants.
How is migration of labour, an issue related to inoperative accounts, being addressed?
For Atal Pension Yojana, I believe there is an aggregator for workforce that is below poverty line, who is responsible for collecting the corpus. Moreover, Aadhaar has enabled a lot.
How are you mitigating risks associated with pensions and annuity contracts?
Every product is designed by PFRDA. There are seven annuity providers.
Annuity products are being designed by insurance companies with IRDAI’s approval. There are eight-nine options. Subscribers receive a maximum 60 per cent lumpsum on maturity and the remaining 40 per cent is annuitised. Transfer to spouse is allowed.