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Who's Going to Sell the NPS?

And even more crucially, how is rampant mis-selling going to be curbed

The long-running saga of India’s modern pension system has finally reached conclusion, a mere sixteen years after it started. The first serious move to create a new pension system started in 1993, and now, on the 1st of May, 2009, the thing has finally gotten of the ground. However, I suspect that the struggle to create an effective retirement benefit system that is actually being widely used has just begun.

During these years, the peripheral details of the proposed system have undergone many changes. What hasn’t changed is the one that makes it so different from the old system. This is a ‘defined contribution’ plan, as opposed to the ‘defined benefit’ nature of the older system for government pensions. In the old system, the government (and other pension-payers) defined what pensioners would get. In the new system, only what is put in is defined, what comes out depends on how well the pension fund is managed.

Back in the 90s, the initial motive force behind the new system was to bring down the government’s future pension liabilities, at least as far as I can remember. The New Pension System (NPS) was talked about mostly as a better way to pay pension to government employees. But over the years, increasingly greater attention is being paid to the NPS as a retirement savings solution for those in the unorganised sector and for the self-employed. The NPS, as it has been launched, is an excellent vehicle to do this. One can complain about some aspect or the other in it and no doubt many of them will get fixed as time goes by. However, taken holistically, the NPS is a huge opportunity to create a financial safety net for crores of Indians who don’t have it.

Which brings us to the most important question—who’s going to tell them about it? Let’s be under no illusion that any savings vehicle sells itself, least of all to an audience that currently uses none, except to keep some cash and maybe a little bit of gold under the pillow. If you want your subziwalla or an autorikshaw driver to start creating a ‘retirement solution’ for himself, then someone has to talk him into it. Given the low-cost structure of the NPS, there is no room for that someone to exist. Moreover, I fully expect there to be a good deal of negative selling of the NPS by competing products. On day one itself, a newspaper reporter went to one of the banks that is a designated service point of the NPS to try and open an account. He found that the bank’s salesmen tried to divert him to some extortionate pension plan being peddled by that bank’s co-owned insurance company!

Practically speaking, this kind of mis-selling won’t stop. The only way to counter it is by a persistent and effective publicity campaign about the NPS and its benefits. The promotional role that Pension Fund Regulatory and Development Authority (PFRDA) needs to play is just starting. If the government is serious about the ‘D’ in the PFRDA’s name, then the organisation simply must become as much a marketing outfit as anything else. There’s no one else who’s going to do that, and without it, the NPS is not going to become the revolution it has potential of being.